A new report from Calastone reveals that investors withdrew £304m from ESG funds in May, the worst month recorded since the mini-Budget last September. This comes as market turbulence and rising inflation prompt investors to prioritise returns over ethical considerations. Last month, UK stocks fell as bond yields soared, with many avoiding oil and gas companies that have seen their share prices rise amidst the energy crisis, instead flocking to money market funds. Whilst affordability remains a contributing factor of the decline in number of Brits prioritising a ‘planet first’ mindset – dropping from 24% to 13% between June 2022 and April 2023 – Reece Tomlinson, investment expert and CEO of Saône Capital, the UK’s first trans-led impact investment advisory, explains why growing interest in the impact investment sector, alongside tightening ESG regulations could spell a renewed sense of appetite from investors.

The decline in investment comes from a lack of transparency in ESG scores and data, with a study from FTSE Russell Survey finding that 59% of global asset owners attributed these factors as the biggest obstacle in sustainable investment. Amidst testy economic waters, investors have also shifted their priorities towards higher returns, after challenging market conditions have resulted in a drop in investor confidence. According to KPMG, UK businesses saw the lowest total VC investment in the first three months of the year, raising only £2.9bn, the lowest since the Q1 2020.

Tomlinson explains that as the UK government continues to consult on tightening ESG regulations, additional transparency could prove to be the key ingredient that rebuilds trust in investors. Alongside this, a global desire to drive environmental and social progress is already fuelling the exponential growth of the impact investment sector. This is highlighted in figures from the Global Impact Investing Network, showing that at the end of 2021, the global private impact market grew to around $1.2tn at the end of 2021 – up 63% since 2019.