Three quarters (74%) of financial advisers offer an ESG investment proposition, according to a new report.

This compares with 86% of discretionary fund managers (DFMs) who offer one.

The majority of the remainder of advisers (23%) plan to offer an ESG investment proposition in the future, according to the study from the Association of Investment Companies.

However, despite the growth in ESG offerings advisers did not rate their knowledge of ESG highly.

On a scale of 1 to 5, financial advisers rated their knowledge level as 3. Knowledge of impact investing was slightly lower at 2.7.

The most uncertainty among advisers who rated themselves as having a lower level of knowledge was around ESG terminology and the different types of ESG fund.

The difficulty of researching ESG investments was highlighted as a problem among both advisers and DFMs. A majority of advisers (58%) and DFMs (55%) agreed with the statement: “I am supportive of ESG, but I find it hard to research investments’ ESG policies and credentials.”

A large majority (89%) of advisers said they expected demand for ESG investments to increase in the next year and over three quarters (79%) agreed that investments should make a positive difference as well as a financial return.

Over two thirds (69%) of advisers agreed ESG investing will have a positive impact on the environment. Over half (60%) agreed ESG investing will have a positive impact on society.

However, financial advisers were more sceptical when it came to the returns offered by ESG investments.

Less that half (40%) of the financial advisers surveyed said that ESG investing is likely to lead to better performance, with only 14% feeling it would lead to worse performance.

A third of financial advisers (33%) also shared concerns that ESG investing would lead to higher risks.

Some financial advisers cited the extra volatility they associate with ESG funds because of their narrowed investment universe. Others said that ESG investing does not fit well with a risk-managed approach to building portfolios.

Most financial advisers that said they were interested in ESG investing had already begun researching it, according to the research. A quarter (23%) of financial advisers said they consider themselves early adopters and a further 48% said that they had recently become more knowledgeable about it. Among DFMs, these figures were higher, 34% and 51% respectively.

Only 3% of financial advisers and 5% of DFMs said that ESG investing was not of great interest to them.

Nick Britton, head of intermediary communications at the Association of Investment Companies, said: “Our research shows that scepticism around the whole concept of ESG investing is now fairly rare among advisers. However, the fog of jargon and competing metrics and standards is confusing even for those who regard themselves as knowledgeable on the subject.

“The issue of performance is also crucial. The fact that various ESG investment approaches have performed well in recent years has shaped advisers’ attitudes, but of course, this isn’t guaranteed to continue in future.”

Research in Finance conducted an online survey of 210 financial advisers and DFMs on behalf of the Association of Investment Companies between 27 July and 31 August.