For investors focused on ESG factors, better performance and seeing the benefits of their investing are critical to their decision to invest in ESG, according to a new survey.
Results from Nuveen’s 6th annual Responsible Investing Survey reveal that 55% of ESG investors say better performance is their most important reason for participating. At the same time, more than 9 in 10 (91%) ESG investors said that seeing the specific societal or environmental benefits of their ESG investing is vital.
Investment performance is likely helping to drive investor interest, with ESG portfolios recently delivering above-average returns for many investors, according to the firm. Among investors currently participating in ESG investing, 46% report above-average returns and 43% say their ESG returns are about the same as overall market returns in the past year.
“Evidence continues to grow that investors are not at all sacrificing performance when they invest with concern for urgent societal and environmental factors,” says Amy O’Brien, Global Head of Responsible Investing at Nuveen. “In fact, ESG-focused management is all about strengthening a company’s viability and sustainability for the long-term, with a measurable impact on fundamental performance.”
Concern about recent natural disasters, as well as other societal issues, is driving fresh interest in ESG investing, with many investors saying that they have changed their investing behavior because of those concerns. Two thirds of all investors agree that recent climate-related natural disasters have made them more interested in the sector, according to the survey.
Still, more than half (53%) of ESG investors also say it’s hard for them to see the societal impact and 95% of those investors say they would invest even more if it were easier. But among ESG investors who say seeing the results is not hard, 94% agree that that makes them want to invest even more toward ESG.
“The ESG marketplace is increasingly sophisticated, and investors recognize it is no longer enough for a company to simply claim they are committed to ESG principles,” O’Brien further emphasizes. “We believe ESG investors are telling us that when they invest in a company that says it is ESG-focused, they want to see tangible evidence of that commitment in how the company runs its operations and behaves toward its key stakeholders.”
Compared with 2019 (44%) and 2018 (44%), Nuveen’s survey also found that significantly more investors who are aware of ESG investment are currently participating in it (53%). Many investors, however, are still not familiar with the approach, with 23% saying they have never heard of it, and 20% saying they have heard of it but are not familiar with it.
The concept of achieving net zero carbon emissions in the management of their portfolios was another area that investors apparently support. A majority of both those currently participating in ESG investing (85%) and those not (55%) agree that knowing the total carbon emissions generated by their investments would help them make more ESG choices.
In addition, most investors (58%) would be more interested in shifting to an investment strategy if it had only investments with net zero carbon emissions. And 29% of all investors have talked to their advisor about investing in low carbon solutions that take climate risk into consideration, while 24% have changed how they invest, according to Nuveen.
Social risk and diversity and inclusion (D&I) are also areas of concern for investors. Nearly 3 in 10 (28%) investors have talked to their advisor about investments that factor in social risk and 27% have changed how they invest. The survey also found that 22% of investors have talked to their advisor about investments that take D&I into consideration and 25% have changed how they invest based on this concern.
And for many investors, an advisor’s recommendation is a significant motivator for getting engaged. Half of all investors cite “based on my advisor’s suggestions/suggestions from my financial advisor” as reasons for participating in ESG investing.
“Our survey suggests that financial advisors are important ‘gatekeepers’ into the world of ESG investing and have a powerful role to play both in introducing investors to the sector and stimulating further market growth,” says O’Brien. “There are compelling benefits for advisors as well: Investors tell us that support for the approach strongly sustains their loyalty to an advisor.”
Not surprisingly, Nuveen also found that younger people are considerably more likely to be ESG investors and to be committed to the approach going forward. Millennials are also more likely to say that having an ESG option in their retirement plan makes them more loyal to their employer.
About three quarters (76%) of Millennial investors surveyed say they are ESG investors, compared with 65% of Gen Xers and just 24% of Baby Boomers. In addition, more than half (55%) of Millennial investors say that more than 50% of their portfolio will be committed to ESG investing in five years, compared with 36% of Gen Xers and only 11% of Baby Boomers.
The survey was conducted by the Harris Poll on behalf of Nuveen between Aug. 24–Sept. 3, 2021, among 1,007 investors in the U.S. with $100,000 in investable assets, and who are primary or joint decision-maker for household financial decisions and currently working with a financial advisor.