It would be a lovely world indeed if every American dollar placed into an investment product or service was done so in order to create a better world.
But investing for the purpose of sending a message about the care of the environment or the need to improve human rights in the world is secondary to the primary goal of investing, which is to increase assets.
One of the arguments against socially responsible investing is that such investing seldom offers the same return on investment as other less pointed investments do. Few investors are going to place their investable assets into a product or service knowing it is not going to give them the same return they could get by investing in a company or fund with a higher anticipated ROI.
But some people do invest with an eye toward social responsibility, and some investors want to do more socially responsible investing. And in order to do so, many of them need to know more about what is possible in that arena of investing.
“There are topics about which investors will first search for details on their own before turning to a financial advisor,’’ said Spectrem president George H. Walper Jr. “But our research shows that investors interested in making a positive impact with their investments are looking to their advisor for information on just how to do that.”
According to Spectrem’s new study Investor Perceptions of Socially Responsible Investing, only 67 percent of all investors even know what those words mean, and their familiarity with the concept is only middle of the road. Asked to rate their familiarity on a 0-to-100 scale, investors placed it at 44.57, which is a low level of understanding.
However, there are investors for whom the topic matters, and they claim their first stop for getting additional information on the topic is to speak to their financial advisor. Forty-one percent of all investors said their advisor is whom they would most likely contact for information on socially responsible investing, while 27 percent said they would go to the internet to discover details on investment products of that sort.
Investors with an intention or desire to invest for socially responsible reasons most often said they wanted to create a better world for their offspring (60 percent), or to improve the environment (58 percent). However, when asked to place a value on the importance of different types of socially responsible investing (on a 0-to-100 scale), those investors most highly valued human rights investing, which is avoiding companies who don’t have adequate work rules themselves or do business in or with countries with poor human rights records. The value of that type of investing was 53.49 overall, slightly higher than environmental investing, which had a value of 50.86.
So investors who want to invest with an eye toward social responsibility want to improve the world through environmental work or demanding better human rights for workers and citizens. Those investors want their advisor to know which companies or funds to invest in or avoid to make those pointed desires happen.
Oh, and they want those investments to make money as well. And most of them know that is not always possible.
Seventy-five percent of all investors admit socially responsible investing does not have the ability to provide a greater return on investment than the overall stock market. However, investors who want to invest according to socially responsible motives are likely to accept products and funds which can match the overall stock market rates.
Top Takeaways for Advisors
Investors surveyed for the study were asked if their advisors have ever encouraged them to consider socially responsible investing and 71 percent said “No”. That is not an advisor’s role. However, advisors should be prepared to work with investors for whom social responsibility is a strong component of their investment interests.
Global investing is a popular factor in today’s markets, and some countries are well-known to have poor records related to human rights violations. Advisors can provide guidance to investors for whom worker’s rights is a point of contention and assist them in avoiding investments which benefit those countries which do not heed worker’s rights demands.
The same can be said for companies which have poor environmental records, or those who promote their environmental record. Advisors should know which companies fit which category for those times when an investor asks about how their investment assets promote environmental causes or damage those causes.
©2018 Spectrem Group