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How managers win ESG mandates

New research from Investment Trends has revealed how investors choose ESG product providers, and it's bad news for some of the big names in funds management.

According to the research, conducted by Investment Trends and Australian Ethical, 87% of investors say the most important factor when choosing an ESG product provider was the provider's reputation.

Brand name recognition, stated ESG values, distribution network and investment track record were all factors in making a product provider's reputation.

It could be bad news for some big brands as news about governance, culture, the treatment of staff or the investment choices within other non-ESG products could all tarnish a reputation.

The findings are reflected in recent decisions by numerous superannuation funds to drop AMP Capital as manager of their respective ethical options. So far Mercy Super, Legalsuper, ESSSuper and LGIAsuper have all withdrawn allocations to the AMP Capital Ethical Leaders Balanced Fund.

A total of 2854 Australian investors and 321 financial advisers were surveyed as part of this research.

The survey found that 78% intend to invest based on environmental factors in the next 12 months while 46% will invest specifically with corporate governance in mind, 43% will focus on ethical beliefs, 43% on social issues and 11% on indigenous issues.

However, financial advisers remain cautious with only 40% discussing ESG investing with their clients in the last 12 months.

This contrasts with the demand from investors and that is being reflected in inflows. A total of 55% of new inflows in ESG-aligned products in the past year were driven by investors rather than adviser.

"At Australian Ethical, we've known for many years that climate change would and should become a key driver of private investment decisions," Australian Ethical chief executive John McMurdo said.

"But not all Australians have the time, energy, or experience to invest in and generate positive sustainable returns from these thematics, which is where Australian Ethical can help. We offer a range of options in our managed funds and superannuation that enable investors to gain exposure to climate-positive investments via one of Australia's most experienced responsible investment managers."

Investment Trends chief executive Sarah Brennan added that the firm's research indicates ESG will only grow as a component of the investing landscape.

"Licensees, platforms and product issuers who ignore it do so at their peril," she said.

"Our new research shows that not only are investors living their ESG values and partaking in a range of climate-conscious activities, the vast majority want to tackle climate change issues as they build wealth."

Read more: ESGAustralian EthicalInvestment TrendsAMP Capital Ethical Leaders Balanced FundJohn McMurdoLegalsuperMercy SuperSarah Brennan