Bigger Than The Environment

Inside The Conscience of Today’s New Investor

The growing interest in ESG investing means consumers are looking for more information on the topics that matter to them

by Kelly LaVigne, JD

Lately it seems everywhere we turn, we hear conversations, see media coverage, and read stories about what’s new with environmental, social and governance (ESG) investing. This socially conscious investment principle has grown exponentially, with the majority (79 percent) of respondents saying they love the idea of investing in companies that care about the same issues they do.

Don’t get me wrong, investors are primarily interested in profiting from gains, but they also want to focus on rewarding companies’ good behavior. In fact, nearly three quarters (73 percent) of people say that choosing an ESG investment is a way to reward good companies. This is according to the recent Allianz Life ESG Investor Sentiment Study*, which examined how consumers are feeling about ESG, and what sort of investment actions they are taking.

It’s no surprise that people say they care deeply about a number of ESG issues, but just how much they care about each individual bucket – the E, the S, or the G – is about the same. When asked about the importance of various ESG topics when it comes to deciding to invest in a company, 73 percent of respondents noted environmental issues like natural resource conservation or a company’s impact on climate change. However, the same percentage said social issues like the working conditions of employees or racial/gender equality, and 69 percent highlighted governance topics like transparency of business practices and finances, or level of executive compensation, as being significant in their investment decision making.

This might come as a surprise, since a lot of the issues we hear about are tied to the environment – just think of all the news about renewable energy initiatives, impact on climate change, or environmental conservation efforts. But in fact, consumers care just as much about a company’s impact on social issues like LGBTQ+ equality or its charitable donations. The same goes for governance issues like how well it pays its employees, and how many women are on their board of directors.

Putting their money where their mouth is

Across the board, consumers say they want the companies they do business with or invest in to be involved in sustainability and socially progressive initiatives. And while people say these issues are important to them and that they want companies to align with their beliefs, how many investors are actually taking steps to act on their values?

Interestingly, the study found that there is a gap between what people say is important, and how they actually invest. For example, 80 percent of people said the wages that a company provides to its employees are important in their decision to invest in that company, but just half that amount say they have actually taken an investment action because of it. That discrepancy exists for nearly every single ESG issue asked about in the study. The only issue where people are actually taking action is related to a company’s donations to political candidates/PACs.

Across the board, consumers say they want the companies they do business with or invest in to be involved in sustainability and socially progressive initiatives. And while people say these issues are important to them and that they want companies to align with their beliefs, how many investors are actually taking steps to act on their values?

While 71 percent said they would stop investing in a company if it behaved in ways they consider unethical, determining how a company is behaving is still a challenge, with 72 percent saying they wish there was more information available on this type of investing.

In addition, over three quarters of the respondents say it would take a lot of effort to research companies included in ESG investments and a lack of uniform evaluation standards led 68 percent to say they don’t know how to evaluate if the companies included in an ESG investment care about causes they support.

This lack of available information may be leading investors to struggle with putting their values into action. Perhaps as more companies listen to consumer demand and get on board with ESG principles, they will make that information more readily available. That way, consumers can make more informed decisions about how to reward companies that are doing the right thing.

Opportunities for financial professionals

There’s no shortage of evidence that consumers want to participate in ESG investing – and not just because they feel it’s the right thing to do. A majority (74 percent) of investors agree that a focus on ESG investing is both “a strategy that you can feel good about, and one that makes long-term financial sense.”

Further, the study found that a company’s ESG profile plays a significant role in its overall reputation. A majority of consumers believe companies focused on ESG issues have better long-term prospects than those that don’t.
The demand won’t be dying down any time soon. Over half (54 percent) of people in the study that aren’t currently involved in ESG investing said they would be interested in having at least some money in ESG investments.

As demand increases, financial professionals can help their clients learn more about ESG investing and fill the knowledge gap identified in the study. Consumers have shared that they don’t know how to evaluate ESG investments, so they may look to their financial professional to help them make decisions that can help satisfy their desires for doing good for society and the planet.

To get a sense for what types of issues and investments clients are particularly interested in, have an open conversation about which issues are important to them, and how to fit ESG investments into their portfolio.

The number of options available to socially conscious investors is on the rise, and financial professionals will play a key role in bridging the gap between investors’ opinions and their actual investment choices. Forward-thinking financial professionals should keep apprised of new ESG products and tools that can help assess and define ESG business practices as they become available, and help clients make informed decisions that will satisfy both their passion for doing good, and their investment portfolio.

 

 

*Allianz Life Insurance Company of North America conducted an online survey, the Allianz Life ESG Investor Sentiment Study, in December 2018 with a nationally representative sample of 1,000 respondents ages 18 years or older.