Amid the focus on the Labor Department’s new proposal to contain ESG (environmental, social and governance) investing, a new survey finds that, for the first time, a majority of investors cite performance as their main motivation for participating in so-called responsible investing (RI).
Nuveen’s Fifth Annual Responsible Investing Survey reveals that 53% of investors cited better performance for prompting them to choose responsible investments, moving past the “misconception that investing responsibly means sacrificing returns.” The firm notes that this was the first time in the history of its survey that investors cited performance as the top factor. The findings were based on separate surveys of high net worth (HNW) investors and financial advisors.
“Investors increasingly understand that promoting positive outcomes on important ESG issues, not only minimizes portfolio risks, it actually leads to improved performance overall,” notes Amy O'Brien, Nuveen’s Global Head of Responsible Investing.
Nuveen’s survey came shortly after the Labor Department issued a proposed rule that seeks to clarify the circumstances and add new requirements surrounding investment decisions in ESG vehicles by ERISA plan fiduciaries. The DOL notes that “ESG investing raises heightened concerns under ERISA,” and that it was “concerned that some investment products may be marketed to ERISA fiduciaries on the basis of purported benefits and goals unrelated to financial performance.”
Yet, while making a positive impact on society is a high priority for most investors (61%), the survey found that performance continues to lead the way for most investment decisions. Nearly 9 out of 10 investors (85%) agree that they will only invest responsibly if the returns are the same or better, according to the findings.
Additionally, 70% of advisors surveyed agree that “better performance and superior risk management” are the top reasons that drove HNW clients to invest in RI, up from just 39% in 2018. And nearly a third (32%) report that their clients’ portfolios with RI realized above market-rate returns in the past year, compared to just 12% and 4% in 2018 and 2017, respectively.
Moreover, 68% of advisor respondents say that investors who incorporate RI in their portfolios typically outperform those without responsible investments—compared to only 28% of those surveyed last year.
One finding that has held steady, according to Nuveen, is how investors view RI in an employer retirement plan. The firm notes, for example, that 59% of respondents said they would choose an employer based on the availability of having a fully diversified RI option in their retirement plan. What’s more, since 2015, nearly three in four investors expressed that having the option to choose responsible investing in their retirement plan makes them “feel good” about working for their employer (71% in 2015, 79% in 2017 and 76% this year).
ESG Investing
While Millennials have long held the spotlight in driving awareness of ESG factors in investing, the findings suggest that greater interest in RI is coming from an older cohort of the population. Surveyed advisors report that Gen Xers (39%) asked about RI most in the past year, followed by Baby Boomers (24%) and Millennials (22%).
And while investors continue to identify most with the ‘E’ (28%) and ‘S’ (20%) in ESG, the ‘G’ (13%) apparently is gaining ground, Nuveen observes. This year’s survey found that nearly two in five investors (39%) feel that the letters in ESG resonate equally with them.
In fact, even before the Coronavirus pandemic, investors say they paid closed attention to corporate governance issues, with 91% agreeing that companies need to enact more policies that make them more accountable to shareholder concerns and 82% noting that companies with strong governance practices can reduce risk.
Still, despite increased investor demand and value in ESG factors, advisors face challenges when it comes to explaining and implementing RI with clients. The firm notes, for example, that 79% of advisors say they still find it challenging to help HNW investors understand the true definition of RI, compared to 68% last year. What’s more, 58% of investors surveyed said they want to invest responsibly but do not know their options—virtually the same sentiment from 2015 (56%).
Nuveen commissioned the Harris Poll to conduct both surveys. The advisors’ survey was conducted online from Dec. 9, 2019 to Jan. 7, 2020, among 310 U.S. financial advisors (one-third wirehouse, one-third RIAs, one-third broker/dealer affiliated). The investor survey was conducted online from Dec. 9-26, 2019, among 1,007 affluent investors.
