Study reveals ESG Shariah funds to experience strong growth
Leading Islamic Finance professionals expect dramatic growth in the number of investment funds combining ESG and Shariah compliance over the next two years.
9 March 2022
Half of retail investors intend to move some of their funds, including pensions, into ESG in 2022 as the focus on ethical investing becomes more prominent.
Half of retail investors are planning to switch some of their investments, including pensions, into ESG investments this year as the focus on ethical investing continues to intensify, as shown by new research from behavioural finance experts Oxford Risk (research has been conducted by independent research company Consumer Intelligence among 1,022 adults aged 18-plus between 28th and 30th January 2022; the research sample was weighted to reflect the demographic profile of the UK).
Its research found 50% of investors intend to move some of their funds, including pensions, into ESG this year with one in seven (14%) planning to move 60% or more of their funds.
Oxford Risk’s study found 41% of investors believe the ESG credentials of advisers and wealth managers are important when it comes to the investment advice they offer. Around a quarter (24%), however, say ESG credentials are unimportant when rating investment advice.
Those figures are likely to change over the next two years – 42% questioned believe ESG credentials will become even more important to help wealth managers win business compared with just 4% who say ESG will become less important.
Oxford Risk’s ESG suitability framework elicits each investor’s unique ESG preferences to determine how much ESG each investor should be encouraged to have in their portfolio, and how the portfolio should be constructed to meet each investor’s personal preferences for balancing “E”, “S”, and “G”. It also provides support for ongoing investor engagement using behavioural messages tailored to each investor.
Its behavioural tools assess financial personality and preferences as well as changes in investors’ financial situations and, supplemented with other behavioural information and demographics, build a comprehensive profile. Oxford Risk’s financial personality tests can measure up to 18 distinct dimensions, of which 6 relate specifically to ESG investing.
Oxford Risk believes the best investment solution needs to be anchored on stable and accurate measures of risk tolerance. Behavioural profiling, then, provides an opportunity for investors to learn about their own attitudes, emotions, and biases, helping them prepare for the anxiety that is likely to arise. This should be used to help investors control their emotions, not define the suitable risk of the portfolio itself.
Greg B. Davies, PhD, Head of Behavioural Finance, Oxford Risk, said:
“ESG investing is building momentum with half of retail investors planning to move at least some money into ESG funds over this year. It is clearly good news that retail investors are engaging with their investments and making positive decisions and advisers need to engage as well by focusing on delivering the best possible service for investors.”