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Don’t Forget About Investors’ Interest in Social and Governance Issues

Industry Trends and Research

While much of the attention within the environmental, social and governance (ESG) sector of investing has been on the environmental component, a new study finds that social and governance issues are just as important if not more so. 

Allianz Life’s “ESG Investor Sentiment Study” finds there is significant focus on companies’ track record across many social and governance topics and that a company’s ESG profile plays a significant role in its overall reputation. 

When asked about the importance of a variety of ESG topics in deciding whether to invest in a company, 73% of American consumers cited environmental concerns like natural resource conservation or a company’s carbon footprint. Yet the same percentage also emphasized social issues such as working conditions of employees or racial/gender equality. 

Moreover, 69% highlighted governance topics like transparency of business practices and finances, or level of executive compensation, as being significant in their decision making. 

A similar preference for positive social and governance results was even more pronounced in relation to consumers’ decisions to conduct business with a company. More than a third (34%) of respondents said a company’s stance on social issues was the most important factor, followed by 27% who indicated corporate governance issues were a top priority. Less than a quarter (22%) cited a company’s record on environmental issues as their primary concern. 

“From a business perspective, companies need to pay attention to the fact that ESG is not some passing fad,” notes Todd Hedtke, chief investment officer for Allianz Investment Management. “Companies that view this as an opportunity to make changes are likely to realize a positive impact in both the near- and long-term.” 

Attitudes vs. Action

When it comes to investments, most consumers agree that a focus on ESG makes good financial sense. According to the findings, nearly 80% of respondents said they “love the idea of investing in companies that care about the same issues” they do and 74% believe an ESG investment strategy is “not only one that you can feel good about, but one that makes long-term financial sense.” What’s more, 71% said they would stop investing in a company if it behaved in ways they consider unethical. 

Not surprisingly, however, a significant gap still exists between what people say is important and how they actually invest. More than three-quarters of respondents said the following ESG issues were important in their decision to invest, yet less than half said they chose to invest or not invest based on those same business practices:

  • Provides safe working conditions for employees (84% vs. 42%) 
  • Transparent in their business practices and finances (81% vs. 44%) 
  • Provides living wages to employees (80% vs. 40%) 
  • Provides quality health insurance to their employees (78% vs. 42%) 
  • Conserves natural resources (76% vs. 44%) 

Reward vs. Punish

While a discrepancy exists between beliefs and investment actions, investors more often choose to reward companies for good behavior rather than punish them for issues where they do not align, Allianz notes.  

Among the 16 different ESG issues highlighted in the study, 11 were more influential in investors’ decisions to invest actively, including carbon footprint, charitable contributions, involvement in reducing poverty, and wages provided to employees. Only two issues were more influential in causing people to stop investing: animal testing and donations to political candidates/PACs. 

“Although many people remain skeptical about actual returns from ESG-focused investments and are confused about what qualifies as an ESG investment, investors still see value in supporting businesses with strong ESG practices,” emphasizes Kelly LaVigne, Allianz Life’s vice president of Consumer Insights. 

As information about the way companies operate becomes more readily available to investors, LaVigne predicts an even stronger focus on ESG performance. She suggests that efforts to provide greater awareness and education on ESG topics will help bridge any existing information gaps. 

Findings in the study are based on an online survey conducted in December 2018 with a nationally representative sample of 1,000 respondents ages 18 years or older.

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