Almost two-thirds of investors are expected to allocate more capital to environmental, social and governance (ESG) issues over the next three years, Royal London Asset Management (RLAM) has found.

In a survey of nearly 100 institutional clients, financial advisers and wealth managers, 65 per cent expect to increase capital into ESG, while 70 per cent said ESG strategies are “somewhat or very” important to them when selecting a fund manager.

Findings from the RLAM annual investment conference also highlighted the industry’s biggest challenges, with 40 per cent citing rising interest rates and inflation, while 22 per cent said the risk of ongoing trade wars and 12 per cent felt that the risk of corporate defaults was the biggest issue.

RLAM chief distribution officer, Rob Williams, said: “The findings of this survey mirror many of the discussions we’ve been having with clients over the past year, and show that ESG is increasingly becoming an integral part of the investment process for many advisers and institutions.

“As the sector becomes increasingly competitive, we think that advisers will begin to dig much deeper into what these approaches really mean for the underlying funds.”

According to Williams, the conversation on ESG has progressed to a more “sophisticated discussion” about how to implement it in investment strategies at a practical level.

“We think that fund management firms have an important role to play in helping advisers get to grips with investing sustainably, and helping them to educate their clients on the tangible benefits that this can provide”, he added.

Furthermore, just 11 per cent of attendees saw Brexit as the biggest threat, down from 22 per cent last year.

Last month, Institutional Investors Group on Climate Change board member, Jennifer Anderson, said that consultants advising pension trustees on environmental investment factors have a “severe lack of understanding or willingness to engage” on the issue.

Anderson said: “We keep talking about the lack of understanding and knowledge within trustees, but we rely on advisers and lawyers, and actually there is a severe lack of understanding or willingness to engage on the topic by investment advisers, investment consultants, fiduciary managers and the legal profession."

In other areas, the survey revealed that 55 per cent of advisers see equity as their preferred asset class, while 25 per cent of investors saw bonds, cash or absolute return as their favoured asset class.

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