The last few years have seen a significant rise in investments based on environmental, social, and governance (ESG) criteria. A recent survey from the Stanford Graduate School of Business suggests this may not actually be what individual investors want, however.
The research quizzed nearly 2,500 investors who had invested between $10,000 and $500,000. The results showed clear generational differences in ESG priorities, with younger investors more enthusiastic about pursuing ESG objectives than their older peers, even if this meant that their investments did worse.
Ethical investing
Around 80% of respondents wanted their personal views to be taken into account by fund managers, especially when it comes to using their shares to vote on social or environmental issues. This is where things diverge, however, as around two-thirds of younger investors said that they were concerned about those issues, but the same proportion of older investors expressed indifference.
This extended to the financial consequences of such decisions, as while younger investors were willing to lose up to 10% of their investment to ensure companies improved their environmental performance, this wasn’t the case for older investors, whose opinion was that they didn’t really want to lose money on their investments.
The researchers believe this is because older investors typically have a shorter time horizon, so they won’t really have sufficient time to make up any losses in their portfolio if it moves toward ESG-based investments and loses money as a result. If you have decades to worry about, then this is less of an issue.
They also believe, however, that older investors are somewhat pessimistic about returns in the coming years, with younger investors generally more optimistic. The expectation of lower returns from older investors made them less willing to sacrifice some of those returns for ESG-based investments.
As a result, the researchers believe it might be prudent for fund managers to poll their investors to gain a better and more nuanced understanding of just what it is that they want.
