The idea that people can direct their investing dollars in a way that is both profitable and supports long term social causes such as improving the environment is unknown to most Americans. To those that know what it is, or learn what it is, it’s a strikingly appealing idea, according to a new survey by Newton Investment Management.
In a survey of 1,000 American investors in late 2018, about 55% of people don’t know what social investing is. Social investing is a catch-all phrase for investing that means investors have a goal in addition to making money – such as countering climate change, improving the representation of women on corporate boards and/or some other ethical dimension, like avoiding “sin” stocks. The survey was commissioned by Newton, a London-based firm managing $60 billion in assets and a subsidiary of BNY Mellon. The findings suggest that people who learn about social investing are highly interested in it. For instance, looking at the group of investors unaware of social investing at the start of the survey, more than half then stated they were moderately, highly or extremely interested in it after learning about it, according to the study. That means, simply, awareness is a huge factor in growing ESG investing.
“The study results make us ask why social investment isn’t more widely understood and why it’s not been more widely adopted in the U.S.,” says Julian Lyne, Chief Commercial Officer of Newton Investment Management. “One explanation is that investor interests need to be better matched with social investment options that make sense to investors. This study makes a strong case for the importance of asset managers with expertise in the space helping connect the dots for investors between social interests and investment outcomes they’re looking for.”
In the Newton survey, about 20% of investors polls have a very high interest in social investing. This group is the youngest, at an average age of 37, the best educated as a group and the most liquid, with about $400,000 in cash savings (though they have the smallest investment portfolio, which makes sense considering the effect time and compounding have on investments). Only 13% of those surveyed just aren’t interested in social investing at all, with no consistent demographic of financial profile among them, at least according to the poll. In the middle of those extremes, the bulk of investors have some level of interest and want either to know how they can match their specific values to an investment or need a single compelling reason to get off the fence.
That vast middle isn’t the easiest group to target. Motivation of investors do vary, the survey notes. Some people are happy to sacrifice some gains to take a stronger moral or ethical stance in their portfolio, while other want strong returns while aligning their assets in a longer term beneficial stance. As I noted last week in the news clean energy funds outpaced the S&P 500 in the first quarter, it’s possible to generate strong profits and have social goals. Plus there’s a wide variety of funds, from stock mutual funds that are regular funds with the tobacco products stripped out to ETFs focused on empowering women, as well as a large host of climate-change and clean energy stock and bond funds.
Interestingly, in examining why more Americans don’t invest in some values-driven way, it appears the complexity of messaging and confusion about what can be done and how to do it is a major barrier. Here the survey concludes a lot of that is the fault of the investment advisor industry. Investment pros should aim to simplify the path to social investing based on the specific interests of their clients.