Investors intend to increase their ESG allocations, but returns and risk remain concerns

A little more than half of investors say they want to increase the ESG allocations in their portfolios, but concerns about boosting returns and mitigating risks are tempering those desires, a new survey of Deutsche Bank’s private bank and wealth management clients shows.

In general, these investors feel they lack ESG investment knowledge and skills, with just 3% saying they thought of themselves as advanced and 15% thinking they have a good knowledge of the subject. Only 7% want to invest their portfolios solely on sustainability factors, but 28% are willing to add sustainability to their investment criteria.

“There is some uncertainty about what ESG really means for portfolios in terms of performance, risk and investment vehicles, but these results show investors are already investing in the sustainable transition,” said Markus Müller, chief investment officer ESG & global head of Deutsche Bank’s chief investment office.

Müller and co-authors of a report on the findings of the survey Daniel Sacco and Afif Chowdhury said that ESG investment remains a rapidly evolving area in terms of products, regulation and information, and that preferences for ESG investment vehicles also vary considerably among respondents.

Just about half the survey respondents said they didn’t have only one specific ESG portfolio objective in mind when investing, instead giving higher priorities to creating a “fairer society” as well as environmental considerations.

Müller pointed out that the “results show that ESG investment remains appealing and reminds us that environmental considerations will be accompanied by social and governance objectives too.”

3 key takeaways from the ESG survey:

1. While environmental factors remain a focus for investors, the survey shows increasing attention to social and governance aspects. Investors are often pursuing multiple goals such as creating a fairer society and enhancing governance. This multifaceted approach supports the case for a balanced assessment of all three ESG pillars.
2. There is a clear intention to increase the share of sustainable investments in portfolios, with over half of respondents planning to boost their ESG allocations in the next five years. However, concerns about risk and return remain widespread, with some investors questioning the short-term performance of ESG investments, particularly in volatile markets.
3. Investors expect different sectors to be performance leaders, depending on the time frame. In the short term, technology and digitization are expected to perform best, while sectors like healthcare and infrastructure are projected to do well in the medium term. Over the long term, the Blue Economy is expected to have the highest returns because environmental factors are expected to increasingly influence investment returns.

This was the fourth annual CIO survey of ESG investing conducted by Deutsche Bank. This year’s survey reached more than 1,300 investors over May and June of 2024.