Sustainable investment takes a hit from the cost-of-living crisis

Sustainable investing has been a growth area in recent years but a new study suggests some people are putting it on the backburner.

Green energy gets less investor attention than previously. Picture: Getty Images

Interest in sustainable investing looks to be waning as people lose confidence and focus more on their own hip pockets, research has found.

An analysis by IG says only 35 per cent of investors now consider ESG (environmental, social and governance) factors in their decision making, compared with 42 per cent a year ago.

Investment specialists say the cost-of-living crunch is playing a role, while some investors are confused by the ESG sector and lack confidence in it.

IG says the declining importance of EGS factors represents a “significant shift in investment priorities”.

“The trend is particularly notable given the global emphasis on sustainable investing in recent years,” its latest report, A Trader’s Position, says.

Interest in sustainable investing has dipped, IG’s analysis found. Picture: iStock

Factors causing the decline include economic headwinds such as rising inflation, geopolitical conflicts and high interest rates, it says. These were “compelling investors to prioritise immediate financial returns over long-tern sustainability goals”.

IG market analyst Tony Sycamore said the findings concurred with Google searches for ESG investing.

“It’s losing its lustre, and the trend worldwide shows it’s not just happening in Australia,” he said.

“I think the reason is higher interest rates and sticky inflation, and the cost of living has encouraged investors to put their hip pocket before their ESG considerations.

“If you can’t choose both, you are going to see that happen more and more. There’s more interest in energy security than there was previously. Getting oil and gas comes at the expense of the ESG sector.”

Some investors had been disappointed by fake ESG claims, and others were confused,” Mr Sycamore said.

“You have bogus funds falsifying their credentials, and that has led to some scepticism in the space,” he said.

“It’s not completely transparent, and there’s no standardisation across regions. People want to invest and do the right thing bit they’re not sure what they’re getting.”

Catapult Wealth director Tony Catt said everyday transactions such as going to the supermarket were more prominent in investors’ minds today.

“I think it certainly has shifted down the priority list … at the end of the day, people talk with their hip pocket,” he said.

“I think there may be a little bit of exhaustion, and worrying about whether it is still the right way to make money.

“Are the performance figures standing up? I’ve had a couple of clients ask about that.”

Mr Catt agreed that geopolitical events were weighing heavily on investors’ decision-making.

“There’s a lot of fear around the globe at the moment,” he said.

Catapult Wealth director Tony Catt

IG market analyst Tony Sycamore

However, the trend away from ESG-related investment decisions could reverse as economic conditions improved, Mr Sycamore said.

He said central banks cutting interest rates and inflation getting under control would be key drivers of this and “will provide a lot more cash in back pockets”.

“It depends on how strong an investor’s sense of purpose is,” Mr Sycamore said.

IG surveyed investors in five countries – Australia, Britain, Japan, Germany and Singapore – and found that Australians were more focused on sustainable investing than all of them apart from Japan.

It also found that Millennials were more focused on the potential impact of inflation and rising interest rates, while Baby Boomer investors focused more on the risks of new Covid-19 variants as well as conflicts in the Middle East and Ukraine.