The future of wealth: Understanding the sustainable investment knowledge gap

Our latest sponsored research delves into the dynamics of the wealth industry today – and delivers some real-world insights that will shape key wealth trends in 2024 and beyond. In this, the fourth and final in the series, we look at gaps in knowledge around sustainable investment (SI).

• When asked what changes they would like to see from investment providers over the next 3 years, the need for knowledge and information on SI was identified by several respondents.
• More than a third of respondents that do not use an advisor do not take sustainability considerations into account in their investment strategy.
• 65% of respondents with more than 25 years’ experience agreed that ESG criteria will become as important as financial criteria for most investment decisions over the next 3 years.

In this, the fourth and final in this series that looks at the evolution of the wealth industry – and the impact of this evolution on advisors, investors, wealth firms, brokerages and other industry stakeholders – we focus on the SI knowledge gap.

Key findings from our research include:

• A lack of knowledge is the number one barrier to SI:

Respondents were asked about barriers to investing sustainably and the number one reason selected was a lack of knowledge about SI.

This was true both where an advisor is used and where no advisor is used, but the issue is far more significant for those without an advisor (52% as opposed to 36% for those with an advisor).

When asked what changes they would like to see from investment providers over the next 3 years, several respondents identified a need for knowledge and information on SI.

• Providers generally agree that SI will grow in the years ahead:

Two thirds (66%) of providers agree or somewhat agree that SI will grow significantly in the years ahead. 

• Those with advisors are more likely to take sustainability considerations into account:

More than a third (37%) of respondents that do not use an advisor do not take sustainability considerations into account in their investment strategy.

For those who do use an advisor, this percentage drops to 24%.

• An increase in experience increases current and aspirational investment in SI:

15% of respondents with more than 25 years’ experience in investing confirmed that they currently hold an ESG investment, but this percentage drops as years of experience reduce – to 13% for those with 11-25 years’ experience, 10% for those with 6 – 10 years’ experience and just 8% for those with up to 5 years’ experience.

The same trend was seen when respondents were asked if they plan to invest in ESG over the next three years – higher percentages were associated with more years of experience.

• ESG criteria are significantly more important to those with more than 25 years’ experience:

When asked whether ESG criteria will become as important as financial criteria for most investment decisions over the next 3 years, a substantial 65% of those with more than 25 years’ experience agreed that they would.

Corresponding percentages dropped for other categories as follows: 

53% (11 – 25 years’ experience)

39% (6 – 10 years’ experience)

42% (up to 5 years' experience)

What do these key findings mean for wealth industry participants, and how can industry stakeholders best support, promote and champion SI going forward? 

Our key finding that a lack of knowledge is the number one barrier to SI presents a substantial opportunity for both advisors and those catering to the self-directed market. 

This identified need for data and knowledge around SI is one that can be addressed with relative ease. More than this, offering trusted, tailored advice – such as that related to ESG-investing – can differentiate the value proposition for both advisors and platforms.

Given that two thirds of providers agree or somewhat agree that SI will grow significantly in the years ahead, delivering the data and knowledge that investors need to fulfil their SI aspirations will be a key factor in future success.

Already, advisors appear to have identified the SI space as an important area in which to guide clients, with those with advisors seemingly more likely to take sustainability considerations into account when making investment decisions. This is further backed by our finding that a reported lack of SI knowledge is more pronounced in those who do not currently use an advisor.  

This suggests that those catering to the self-directed market now have a particular opportunity to address this immure balance and to deliver trusted, insightful data and intelligence around SI.   

Our finding that an increase in experience increases current and aspirational investment in SI, coupled with the fact that ESG criteria are significantly more important to those with more than 25 years’ experience, is in stark contrast to the more widely held opinion that younger investors (in general, those with less investing experience) are the ones who are most concerned with the global issue of sustainability. This suggests that there is a substantial opportunity to raise awareness of the importance of SI amongst all age groups and across all experience levels.  

These insights underscore the fundamental value and importance of data in the wealth equation, where a lack of knowledge in any one area, such as ESG, simply leads to lower investment in that area. Thankfully, delivering trusted knowledge and insights is easier than ever in today’s dynamic wealth space, where both digital capabilities and the data revolution continue to reshape the investment landscape.

Those that can successfully deliver targeted SI knowledge to their clients will be best placed for future success, as ESG criteria continue to impact investment decisions at an ever-increasing rate.