Nine in 10 financial advisers and wealth managers recommend sustainable funds, but only one in 10 completely trust funds’ sustainability claims. The findings come from a survey of 109 financial advisers and 91 wealth managers carried out by the Association of Investment Companies (AIC).

Nearly half (48%) of those responding said their firms were early adopters of ESG investing, up from 37% in the previous survey. Only 1% said ESG investing was of no interest. Use of sustainable investment companies by intermediaries has increased, with 24% of respondents saying they used them, up from 19% last year.

Wealth managers were the drivers of the increase, with 42% saying they used sustainable investment companies, up from 32%. Use of such vehicles by financial advisers stayed at 10%.

Limited trust

But while the research revealed strong support for ESG, with 79% agreeing with the statement “investments should make a positive difference as well as a financial return”, trust in the claims made by funds was limited. Asked to rate sustainability claims on a scale of 1 (no trust) to 5 (completely trust), only 1% of respondents gave a 5 mark. The majority, 56%, gave a 3 mark.

Providing more specific information would help build confidence, comments made by respondents indicate. One said: “I would need to see real examples in the portfolio. I would need them to say, ‘We looked at company X last year. We really, really liked it. It scored really well on all our stuff but then when we thought about it from a sustainable point of view, we didn’t invest in it.’”

Confidence has also been affected by what the AIC describes as “a perfect storm” of high energy prices, the Russia-Ukraine war, market falls, and rising inflation and interest rates. Just 36% thought ESG investing was likely to improve performance, down from 47% last year. And 61% thought that ESG investing would lead to higher charges, compared to 46% last time.

Higher risk

The number of respondents who thought ESG investing would lead to higher risk was up to 45% from 32%.

Nick Britton, Head of Intermediary Communications at the Association of Investment Companies (AIC), said: “Advisers and wealth managers are overwhelmingly on board with ESG and sustainable investing, but they’re also keenly aware of the risks of greenwashing with only 1 in 100 completely trusting ESG claims from funds. In the light of this, the FCA’s decision to impose stringent rules on how funds present their sustainability claims looks timely, and it’s one we fully support.”

SurveyResearch was carried out between July 27 and August 31 by Research in Finance. The survey contacted 200 retail intermediaries online, and followed up with in-depth interviews with 10 selected respondents. The AIC has 354 members, and the investment trust industry has total assets of around £262bn ($308bn).