While conventional wisdom suggests that ESG investing has been driven by socially conscious Millennials, a new survey suggests that ESG now appeals to the mainstream of individual investors.
According to Natixis Investment Managers’ survey of more than 8,550 individual investors in 24 countries, ESG investors do skew younger, but interest is high across all age segments, including 52% of Millennials, 52% of Gen Xers and 44% of Baby Boomers.
And while interest might be running high, the survey shows a smaller percentage of those who actually invest in ESG. Here, 27% of Millennials say they are invested in ESG, while 20% of Gen X and 18% of Baby Boomer respondents said the same.
Of those individual investors who currently employ ESG strategies, 24% invested in ESG for the first time in just the past year, while 33% of those who were previously invested added to their existing holdings.
“As ESG becomes more widely adopted and investors learn more about the different kinds of ESG investments, interest in ESG investing is growing rapidly, reinforced by positive returns from these strategies,” explains Nathalie Wallace, Global Head of Sustainable Investing at Natixis IM. “With governments, nongovernmental organizations and private companies all showing increased commitment to ESG goals, these strategies can enable investors to pursue superior environmental and social outcomes and the financial performance they expect.”
Fund Managers and FAs
The survey also found that not only are investors committed to sustainable business goals and practices, but that commitment extends beyond personal responsibility to fund managers, who they reportedly hold to the same standards of active engagement with investments.
According to the findings, 43% of Millennials, 38% of Gen Xers and 29% of Baby Boomers have sold an investment because of a company’s poor ESG performance. More than half (55%) believe fund managers also should sell their shares in companies with poor ESG records.
In addition, 74% of individual investors expect their fund manager to engage with the companies they are invested with to influence both ESG and better business practices.
According to Natixis IM, ESG also increasingly is a part of the dialogue between investors and their financial advisors. Here, the survey found that 59% of investors worldwide say their advisor has spoken to them about ESG investments, and 56% say their advisor proactively has asked them about whether ESG issues are important to them. Not surprisingly, a higher percentage of Millennials (68%) say their advisors have talked with them about ESG, compared with 60% of Gen Xers and 52% of Baby Boomers.
“Increasingly, individual investors believe the ESG investment decision-making process should involve all of the parties in investing, including financial advisors, fund managers and investors themselves,” notes Dave Goodsell, Executive Director of Natixis IM Center for Investor Insight. “This is another example of how mainstream ESG has become in investing, and its potential for becoming among the most critical decision points for investments.”
Still, while few investors (17%) say they don’t know what ESG is, a larger number (41%) say don’t know enough about ESG as to why they don’t use ESG strategies or invest more in them.
Proof of Performance
Natixis IM observes that investor sentiment has shifted dramatically since 2017. Currently, only one in five investors believe that investing in ESG means sacrificing investment performance. But in 2017, the firm found that 64% of investors surveyed believed they would need to sacrifice some return potential to have investments that match their personal values.
The firm goes on to suggest that recent data bear out ESG investing’s potential to generate outperformance. It notes that, by the end of the third quarter 2021, the S&P 500 ESG Index had outperformed the S&P 500 Index by 3.7% for the three years ending Oct. 3, 2021.
Doing Well and Doing Good
Conventional wisdom might also hold that individuals want to invest in ESG solely to align their assets with their personal values, but those surveyed are just as likely to find a profit motive in ESG.
In this case, Natixis IM found that 41% of ESG investors see it as a way to help support the environment, but almost as many say they think ESG is a better way to invest (35%).
Moreover, rather than limiting their expectations to aligning assets and values, individual investors are connecting their ESG investments to current business trends, as 45% say it is important to invest in companies that are transitioning to a more sustainable business model. The study observes that sentiment for this investment viewpoint is surprisingly strong among older investors, with 48% of Boomers saying so, followed by Gen Xers (44%) and Millennials (43%).
The findings in Natixis IM’s survey are based on data gathered in March and April 2021 by CoreData Research. Each of the 8,550 individual investors had minimum net investable assets of U.S. $100,000.
