Interest in sustainable investing has been on the rise in recent years. Yet when it comes to aligning their investment decisions with the values that define sustainable investing, investors don’t always follow through.
A survey of over 1,500 Americans found that about six in ten agree that all investment funds should consider sustainability factors (61%) or believe they can contribute to a more sustainable world by choosing sustainable investment products (62%).
But, according to an annual Global Investor Survey conducted by U.K.-based Schroders, investors’ actions don’t necessarily accord with these beliefs. For example, only 15% say they actually invest in sustainable themed investments, and 31% say they are interested and want to invest.
“There remains a gulf between people’s sustainable investment aspirations and the reality of how they prioritize these factors in their investment decision-making. A significant proportion of investors clearly believe that sustainable investing is important, but this has yet to translate into tangible action for the majority,” Jessica Ground, global head of stewardship at Schroders, said in a statement.1
Regardless of that gulf, the growth of sustainable investing is a trend that can’t be ignored if one were to simply follow the money. In Europe, the U.S., Canada, Japan, and Australia and New Zealand sustainable investment assets under management reached $30.7 trillion as of 2018, a 34% increase from 2016, according to the Global Sustainable Investment Alliance’s most recent review published this past April. Total assets under management in the U.S. grew to $12.0 trillion at the start of 2018, a 38% rise from $8.7 trillion in 2016.2
Apart from activities and strategies that focus on environmental, social and governance (ESG) integration, sustainable investing also encompasses: negative/exclusionary screening; positive/best-in-class screening; norms-based screening; sustainability themed investing; impact/community investing; and corporate engagement and shareholder action. ESG integration is currently the dominant strategy in the U.S., with an estimated $9.5 trillion in assets, according to the Global Sustainable Investment Alliance.
Risk Avoidance, Return Expectations More Important
The pulse of sustainable investing among investors shows that U.S. investors lag the global average in considering sustainable issues and their investments. Just over half, or 51% of Americans who participated in the Schroders survey, say they always consider sustainability factors when selecting investment products, less than the global average of 57%.
Investing sustainably also didn’t rank highly in terms of overall financial priorities. Investors in the U.S., instead, cited the need to avoid losing money (34%), meeting total return – income and growth – expectations (32%), generating their expected level of income (30%) and reasonable fees (25%) as more important factors. In sum, only 23% ranked investing sustainably in their top two most important investing factors.
So what could get investors willing to commit more capital to their sustainable beliefs? Based on the views of more than 25,000 investors in 32 locations around the world, it appears that what’s required is a bit of regulatory and ratings framework.
About 60% of investors agreed that two developments would encourage them to allocate more money to sustainable funds. They are: changes to regulations to encourage greater investment in sustainable investments; and greater use of independent ratings highlighting genuinely sustainable funds.
In addition, 59% of those surveyed responded that access to easy-to-understand information from their financial adviser would prompt them to invest more in sustainable funds.
“The entire investment chain, from asset managers to financial advisers, needs to help better communicate and educate on sustainable investments,” Ground said. “Most importantly we need to do this while still delivering the financial returns investors are looking for.”3
Schroders Plc. (2019, September 17). Schroders’ Global Investor Study Finds that US Investors’ Ambitions Fail to Reflect Their Actions within Sustainable Investments [Press Release]. Retrieved from: https://www.businesswire.com/news/home/20190917005774/en/Schroders%E2%80%99-Global-Investor-Study-Finds-Investors%E2%80%99-Ambitions
See also: Schroders Global Investor Study 2019: People’s sustainable investment ambitions fail to reflect their actions [Press Release]. Retrieved from: https://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-study-2019-peoples-sustainable-investment-ambitions-fail-to-reflect-their-actions/
Global Sustainable Investment Alliance. (2019, April 1). Global Sustainable Investment Review 2018. Retrieved from: http://www.gsi-alliance.org/wp-content/uploads/2019/06/GSIR_Review2018F.pdf
Brett, D. (2019, September 24). Chart of the week: What would persuade investors to opt for sustainability? Schroders. Retrieved from: https://www.schroders.com/en/insights/global-investor-study/chart-of-the-week-what-would-persuade-investors-to-opt-for-sustainability/
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