ESG investment: From 'ideals' to concreteness

The enrichment of the ESG dimension constitutes a strategic opportunity for the financial sector to strengthen reputation, create greater investor engagement, and collect and utilise capital that is still too liquid and sterile today.

31.05.23

The evolution of social awareness towards environmental, social and governance issues – and the real attention and seriousness with which companies and financial players are approaching the ESG issue – converge in this direction.

The path towards this goal, however, is currently thwarted by a difficult conjuncture on markets and Italy’s economic situation, which lead to fears and changes in expectations towards investments, including those related to ESG. Against this challenging backdrop, it is important to consider that the value placed by individual investors on sustainability and ESG criteria today may be entering a pivotal phase.

While there is great adherence to the concept (understood as the preservation of resources and wellbeing in the environmental, social and economic spheres), consumers struggle to translate this adherence into concrete actions. The widespread nominal knowledge of the concept of sustainability today (8 out of 10 Italians) sits alongside a stagnation of the number of those who have a more substantial knowledge of its meaning (after a strong growth between 2014 and 2019, this number has stabilised at a share of only 37% of Italians).

This disorientation affects ESG investment as investors ask for more concreteness and more tangible outcomes, but above all clarity on the real ability of financial service providers to deliver on their sustainability promises. In fact, scepticism is growing about the real impact of ESG investments, while the perception of positive returns is weakening.

There is therefore a need to further elaborate commercial arguments and propositions primarily around two aspects: the difference between ESG investments and traditional ones (including in terms of their respective risk-return on equity ratios), and their tangibility.

Consumer expectations regarding the tangibility of sustainable investments primarily revolve around the social sphere. Among the three outcome priorities of ESG funds, the priority for Investors is identified with the social sphere (47%), although the environment has been growing in importance in recent months (39%). The impact on society is what can most easily make ESG investments more concrete through visible and tangible results for the individual citizen.

Only when this contribution to sustainable growth is associated with financial investments will consumer adherence really be enhanced. We find this in our data: if one in four investors declare interest in ESG investments, almost six in 10 (more than double) declare interest in investments linked to concrete 'beneficial' projects, whatever their ‘label’, provided they can ‘feel’ their impact (i.e., investments that support charitable initiatives, microcredit, investments in clean energy and technologies, and those which support initiatives in their own territory/municipality, support public works, health projects, etc.).

It is why we believe it to be essential that commercial and product development efforts are truly aligned with consumer sensibilities as they appear in our research and not in theory, working on assets that maximise the perception of value as much as value itself.

Stefania Conti

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ESG investment: From 'ideals' to concreteness

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