Europe's ESG Investing: Unveiling Investor Sentiment

Investors, particularly in Europe, are unwavering in their commitment to achieving environmental, social, and governance (ESG) objectives, with a keen focus on the economic transition, according to a survey conducted by Deutsche Bank's Private Bank Chief Investment Office (CIO).

The annual survey, encompassing private clients and institutional investors, indicates that climate change remains the foremost environmental concern influencing investment decisions, even though the percentage mentioning it has slightly decreased from the previous year's survey, standing at 44 per cent.

Markus Müller, Deutsche Bank's Private Bank CIO ESG and Global Head of the CIO, emphasised that investors are concentrating on the economic shift toward a low-carbon economy. Despite occasional scepticism in public discourse about ESG, the survey underscores a robust commitment to the cause, particularly among European investors. Müller noted that companies demonstrating a commitment to and successful execution of their transition plans are poised to gain investor support.

The survey also reveals that investors prefer regulatory measures for environmental protection. However, when assessing company transition plans, they favour market-driven solutions such as enhanced production processes, technological advancements, and consumer education over policy-driven initiatives.

Despite acknowledging climate risks and the imperative for economic transition, only a small fraction of investors feel well-versed in ESG. Despite the substantial growth in ESG investing, with a notable surge during the COVID-19 pandemic, only 15 per cent of respondents consider themselves well-informed about ESG, and a mere 3 per cent identify as ESG experts. Müller emphasised the need for more extensive investor education to bridge this knowledge gap.

Regarding investment opportunities, the energy transition holds the top spot at 18 per cent, surpassing other options like Artificial Intelligence, manufacturing, and the circular economy. However, confidence in ESG's ability to manage portfolio risk has slightly diminished compared to the previous year, with 37 per cent of respondents agreeing that ESG factors can help in portfolio risk management.

Notably, the survey unveils differences in attitudes between men and women investors. Women exhibit a higher inclination to avoid investments not meeting sustainability expectations and express a greater desire for information on company transition plans. Moreover, women show stronger support for international regulation to safeguard the ocean and biodiversity.

The survey's spotlight on Germany, Spain, and Italy indicates variations in investor beliefs and conviction in ESG. Italian investors demonstrate more agreement on the positive impact of ESG factors on performance and risk management compared to their German and Spanish counterparts. However, investors across the three nations concur on the necessity for more information regarding companies' transition to sustainable business models.

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Source: Deutsche Bank