Nine out of 10 financial advisers and wealth managers recommend sustainable funds to clients despite widespread concerns about greenwashing, according to new research.

Research for the Association of Investment Companies’ found an increase in sustainable recommendations.

Some 91% of respondents to its survey of 109 financial advisers and 91 wealth managers said they recommended some sustainable funds to clients, up from 89% last year.

There was also a jump in the number of firms considering themselves to be early adopters of ESG investing.

Nearly half - 48% - said their firms were early adopters and had offered an ESG investment proposition for a number of years – up from 37% last year.

Only 1% of respondents said that ESG investing was not of interest to their firm.

But there were widespread concerns about greenwashing expressed in the same survey, with only 1% of respondents stating that they completely trust funds’ sustainability claims.

The use of sustainable investment companies (investment trusts) has increased year-on-year, as has their appeal to intermediaries. Nearly a quarter (24%) of respondents to this year’s survey reported that they used sustainable investment companies, compared to 19% last year.

The increase was driven by wealth managers, 41% of whom said they used sustainable investment companies, compared to 32% last year. Investment companies invest in a variety of sustainable, environmental impact and social impact assets, many of them unquoted.  

Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC), said: “Investment companies offer access to a galaxy of sustainable and impact investments that are difficult for other types of funds to invest in – from renewable energy infrastructure to social enterprises.

“Our survey suggests that financial advisers and wealth managers increasingly recognise this, and are seeing the appeal of these strategies for a wide range of their clients.”

One unnamed wealth manager told the AIC’s survey: “To have a positive impact, in my view you have to do it in the primary market so you need to do it in private equity. So I think that impact lends itself very well to the investment trust wrapper because then you can start doing private equity and unlisted and illiquid long-term projects that could have a longer-term positive impact.”

Intermediaries tend to favour active over passive strategies for ESG investing, and that attitude has hardened slightly since last year.

Nearly three-quarters (73%) of respondents to the survey agreed that ESG investing was better suited to active funds, up from 69% last year.

And less than half (41%) of intermediaries thought that ESG investing can be achieved through passive funds, down from 43% last year.