Executive summary

In Italy and Spain, the institutional market has traditionally been stronger voices pushing the ESG (environmental, social and governance) debate into action. However, the last few years have also seen positive uptake from the retail market in favour of sustainable and responsible investing – a good indicator of a potential market that can be capitalised on. 

While the majority of retail investors consider it important to integrate ESG factors within the financial sector, only a small percentage are willing to make an investment in sustainable products. Perhaps unsurprisingly, ESG themes are most important to millennials, but baby boomers are still the ones more willing to invest. Also, the wealthier investors are, the more aware and knowledgeable of ESG themes they seem to be. 

Financial advisers still consider environmental factors as the most important element for their clients over the short term. That being said, the severe impact of coronavirus and the resultant changes to the way people have had to work and live, have pushed the ‘S’ very much to the forefront. 

There are still a number of factors that constrain progress in ESG investing, including a bias towards the profitability of ESG investments, lack of education and accountability, and inadequate product offering. 

Responsible investing hits main street

In Southern Europe, as is the case in the rest of Europe, the trend of pushing the ESG (environmental, social and governance) debate into action is stronger in the institutional space due to increasing demand and pressure from sophisticated investors. The occupational pensions sector leads the way on ESG integration. 

Institutional money leads the ESG charge 

According to the Mercer Asset Allocation Survey 2018, 40% of the largest European institutional investors and pension funds have adopted ESG factors within their portfolio. In Italy, this percentage rises to 46%. 

A 2019 report issued by Spainsif, the Spanish sustainable investment forum, states that about 75% of assets held by Spanish occupational pension funds take ESG criteria into account.  

This can be attributed to long-term approach that institutional investors have historically taken to investing. They tend to seek ESG integration throughout the whole value chain. This extends beyond applying specific factors when building portfolios and includes the way portfolio managers engage with companies, as well as identifying investment themes that make economic and social sense in line with the UN Sustainable Development Goals.  

Steps towards further strengthening are being taken across the sector, with some of the larger pension funds leading the debate. In its latest ESG activity report, Pensions Caixa 30 – Spain’s largest corporate pension fund in terms of assets – disclosed that 87% of its assets are being managed under ESG criteria, while 90% of its underlying asset managers are signatories to the UN PRI (Principles for Responsible Investment)

ESG on the retail radar 

Nevertheless, over the last five years, the retail market has shown positive uptake in sustainable and responsible investing, indicating potential that the investment market should capitalise on.  

Every two years Eurosif – the European association for the promotion and advancement of sustainable and responsible investment across Europe – tracks the evolution of the socially responsible investment (SRI) asset breakdown by investor type. Over the past few years, it has registered a positive trend among the retail sector, which is starting to take an interesting dimension. In fact, the last four years has seen demand from the retail sector increase by over 800%. 

Research carried out in 2019 by Banca Generali for Assogestioni – the Italian association of fund and asset managers – reveals that the Italian retail market is increasingly more interested in ESG investing. We’ve seen clear evidence of this growing trend in the industry already: sustainable investing was the main theme of the 2019 edition of Il Salone del Risparmio, Italy’s largest fair dedicated to the investment management industry.  

Demographic and wealth differences  

The same research – which was conducted among a sample of 1,700 individuals (i.e. end investors, private bankers, financial advisors, and fund selectors) – has, perhaps unsurprisingly, shown that ESG themes are most important among millennials. However, baby-boomers are still the ones more willing to invest.  

It also shows that the wealthier investors are, the greater their awareness and knowledge of ESG themes appear to be. According to the report, 49% of private banks’ clients and high-net-worth individuals (HNWI) can broadly describe what ESG investments are. This stands in contrast with the fact that 49% of the mass market and 42% of affluent and upper affluent clients still can’t differentiate ESG from impact investing.  

Advisers’ expertise  

According to a new study by Franklin Templeton and NMG Consulting, nine out of 10 European financial advisers (FAs) think that improving and deepening their expertise in ESG investments is an opportunity to grow their business. 

In Italy, nine out of 10 of interviewed FAs say that they allocate into ESG. Swedish FAs are more advanced in relation to SRI and impact investing, with 70% and 68% allocated in these products respectively. Similarly, in the UK, 87% of IFAs declared that they invest in ESG products – slightly higher than the 85% the average allocation for Europe. 

Flows lag positive intentions 

The Forum for Sustainable Finance conducted research to assess the relevance of ESG themes among Italian retail investors and their preferred channels of communications. It found that 68% of Italian retail investors consider the integration of ESG factors within the financial sector as important, but this positive attitude doesn’t translate into a personal investment choice. Only 45% declared that they would be willing to make an investment in sustainable products, and among this, the majority would only invest up to 10% of their portfolio (66%). 

As retail investors become more interested in responsible investing, advisers are not standing idle; it is often advisers who broach the subject first with their clients. On average, 71% of advisers (both globally and in Europe) reported initiating the conversation around responsible investing strategies and products. However, there are big differences between countries. In Italy, advisers led over 90% of the time, while in Switzerland, the subject was equally likely to be introduced by the adviser or the client.” From the Franklin Templeton survey 

E, S or G? 

FAs still consider environmental factors to be the most important element for their clients over the short term. Within ‘E’, climate change, water solutions, plastic and circular economy are the most relevant topics. 

Source: NN Investment Partners’ Investor Sentiment: Responsible Investing survey, May 2019. 290 professional investor respondents

According to a survey (Investor Sentiment: Responsible Investing), commissioned by NN Investment Partners to investigate which ESG factors investors believe to have the most potential to drive returns, 66% of professional investors see the most potential in environmental factors when it comes to generating returns. Governance (40%) and social factors (15%) lie far behind.  (The survey was carried out in May 2019, among 290 professional investors, drawn from five main areas: France, Germany, the Netherlands, Italy and Belgium, with a further panel of respondents collected from the UK and Scandinavia.) 

According to the Spainif report, the Spanish retail investor base represents an important player in the ‘E’ component of the SRI industry. In Spain, over 82% of investors are retail, followed by Belgium, Sweden and the UK: all three well above 40%. 

However, according to the Franklin Templeton research, FAs think that the relevance of the three factors of ESG will change when clients start investing for the long term. The survey reveals that 40% of responsible investment activities are in national products, 29% in regional products and 27% in global product. 

Covid-19 makes social more relevant 

Historically, the ‘S’ of ESG has been more challenging to evaluate, as it typically relies on qualitative measures with limited means to assess actual performance. However, the severe impact from coronavirus and the changes to the way people have had to work and live, have pushed the ‘S’ very much to the fore. For example, social bonds – instruments comparable to green bonds – saw a €20 billion injection in just a few weeks, which experts say was linked to greater social awareness among investors during the Covid-19 outbreak. 

From the start of April until recently, the €20 billion raised predominantly came from France, Spain, Italy, the Netherlands, Japan and Africa, increasing the size of the market by 43% to €66 billion. 

According to the NN Investment Partners’ study, the Covid-19 crisis caused the ESG investing scope to extend beyond green bonds and sustainability, to social bonds, after acceptance of the ‘wide-ranging social implications’ of Covid-19. 

It is still an uphill road 

There are still a number of factors that constrains progress in ESG investing. Below we focus on a few. 

Sustainable investments and profitability 

Among FAs and end investors there is the widespread misconception that, in sustainable investments, performance and consistency of returns are not a priority and come as a secondary element, despite multiple studies pointing to the opposite.  

This is partly due to the lack of clarity and understanding of what ESG investments are and the difference between such investments and other forms of sustainable finance, such as impact investing or charitable investments.  

This is particularly true in Spain, where there is still wide scepticism, particularly among retail investors, about responsible finance. This is coupled with pervasive short-termism – the so-called ‘CSR fatigue’ – of the last 20 years. For many years, the few options available to Spanish investors were fondos solidarios (charitable funds), by which the fund manager would donate some of the higher than usual fees to a charity. Conceptually, fondos solidarios mixed philanthropy and ESG investments, which have not helped to build the case for SRI in Spain. 

Lack of education and transparency 

The Assogestioni research reveals that in Italy only 12% of private and NHW investors know what the E, S and G stand for. This number is 13% among affluent and upper affluent investors, and 3% in the mass market. The situation is even worse when asked to define SRI: only 10% of private and HNW investors know what SRI means, 8% of affluent and upper affluent and 4% of mass market.  

There is clearly still a lot of confusion that needs dissipating. At least until recently, legislation has not helped improve things. Specific legislation, mostly shaped by MiFID I and II, still contains no precise requirements to embed sustainability as part of the investment preferences discussed with clients. Lack of definitions and clear metrics also still hamper our industry. 

These concerns are the central focus of the work of the European Commission, as part of its Action Plan on Sustainable Finance. In fact, the majority of the recommendations set out by the European Commission are in line with adding a much-needed layer of transparency on what sustainable finance is and guide investors in the right direction. This ties in strongly with concerns around greenwashing, which clog the offer of SRI products.

Lack of accountability  

There is debate is around who should provide such education. According to the Assogestioni survey, 98% of affluent and upper, 92% of private and HNW investors believe it should be their financial adviser, while 88% of mass market investors think their own bank or the company they invest the money with should inform them.  

There is also a mismatch in perceptions of how much the operators have done and are doing on ESG education. Operators believe they have done more compared to what the investors believe.   


According to the Forum for Sustainable Finance survey, at the question whether they were ever offered sustainable or responsible investments by their financial advisors or banks, the vast majority of the sampled investors, who currently don’t invest in sustainable products, replied that they were never offered such products. 

Inadequate product offering 

Over the past few years, Italian operators have reinforced their commitment to sustainable investing, by offering services and products, as well as organising activities in line with the achievement of the 17 objectives of sustainable investing. However, retail investors clearly do not perceive this as adequate. 

According to the Spainif study, the increase in retail investors’ demand for ESG products is not matched by an adequate product offering. In fact, there are still too few retail clients with the opportunity to invest according to sustainability preferences.  

Change in the tides 

The environment is clearly changing, if retail investors’ attitude and intentions are anything to go by. Rather than having to convince their investors to invest responsibly, investment operators’ biggest challenge will instead become creating of a widely diversified and credible offering that meets their investors’ needs and sensibility in terms of responsible investing, with a constant eye on performance.