Does ESG Investing Matter to Investors?

4/4/2022

On March 22nd of this year, the SEC released standards for corporations of the required disclosures regarding climate related issues.  The Biden administration is focused on numerous environmentally related issues and presumes that investors are equally concerned about these issues when deciding how to invest their assets.  But do investors really worry about these issues when allocating their portfolios and making investment decisions?

Spectrem Group recently completed research with wealthy investors regarding the importance of ESG principles in their investment decision-making.  “ESG” stands for environmental, social and governance.  The research was conducted with investors with between $100,000 to $25 million.  When asked how critical ESG principles were to them when choosing individual stocks, only 31% indicated that ESG principles were somewhat or very important to them.  A third of investors indicated that ESG principles were neither important nor unimportant when making their investment decisions.  Thirty-six percent of investors indicated that ESG principles were not important in their investment decisions.

 

As you can see, age has a significant impact on an investor’s opinion regarding whether a company follows ESG principals.

Financial advisors should discuss the importance of ESG with their clients to gain an understanding how that investor feels about these issues.  Before making investment recommendations, financial advisors must understand the relevance of ESG to a particular investment as well as the importance of these issues to his or her clients.  Regardless of the importance to an individual client, how a company treats the environment will become an important factor to future investments.