Investment decisions based on environmental, social and governance (ESG) factors are growing in popularity among investors, despite a limited understanding of what they entail, research has found. The 2020 Financial Adviser survey, conducted by fund data and technology company FE fundinfo, reveals that while 56% of advisers have increased the amount of client money they have invested in ESG funds over the past year, 62% believe that their clients do not understand what ESG investing involves.

Among ESG factors, the research also reveals that investors primarily favour funds that have limited or zero impact on the environment. A quarter of financial advisors listed environmentally-friendly investments as their clients’ preferred ESG consideration, followed by ethical investments (e.g. avoiding certain companies, sectors or industries) at 24%.

Companies with strong corporate governance or focus on social impact or Islamic finance seem to be less of a concern for investors. The research also found that advisers believe that the growing demand for ESG investments, is mostly coming from investors themselves. Over a third of advisers (36%) believe the growth in ESG is primarily investor led, while just 7% say it is being driven by institutional pressure alone.

Around 38% said it was primarily a mixture of investor demand and institutional offerings.