Eighty-nine per cent of investment consultants expect to see an increase in client interest in environmental, social and governance (ESG) issues, says the European Sustainable Investment Forum (Eurosif).

The report by the network, sponsored by AXA Investment Managers, Bank Sarasin, Robeco and SAM, showed that a mixture of investor reputation, beneficiary pressure and an evolving view on fiduciary duty is forcing investment consultants to take ESG into account.

"This study has highlighted two key challenges for asset managers who are committed to delivering sustainable and better risk adjusted returns," commented Melissa McDonald, head of responsible investment at AXA Investment Managers. "It is clear that there is a lack of understanding around the contribution of ESG investment to the sustainability of returns and a resulting lack of explicit client signals within the institutional investment process; it is these challenges that we at AXA IM want to respond to as part of our long-term commitment to the mainstreaming of ESG."

Corporate pension funds, public pension funds and family offices or high net worth individuals were found to be behind this emerging trend, and their interests range from guidance surrounding thematic investing to advice on the integration of ESG issues across all asset classes.

"With increasing numbers of sustainable strategies, asset classes and products, it is becoming easy for institutional investors to invest in attractive products and styles," added Frank Wettlauffer. "Consultants screening the financial offerings in the market place therefore play an increasingly important role."

The report also showed that 36 per cent of consultants participating evaluate a fund manager's ability to incorporate ESG as a routine part of their assessments.

However, obstacles remain that prohibit consultants from developing ESG offerings quickly, and a key problem is the need for greater education and training. Asset owners also need to be more explicit about responsible investment by making their beliefs on the issues clear.

Matt Christensen, executive director, Eurosif, concluded: "Service development will remain a key facet to monitor as it is not yet clear whether newer or established firms will best respond to the growing ESG demand for services. Certainly, the Eurosif study shows that some firms are aggressively developing products and services in anticipation for further market growth in the coming years."

The report is available here.

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