What Does ESG Mean to Investors?
ESG is a term that some investors are not very familiar with, yet the concept of investing in such a way that follows one’s moral, political, or social ideologies is desired by many wealthy investors. Some may choose to specifically avoid certain types of companies or investments that negatively impact the environment or promulgate perceived social injustices. Other investors may seek to invest in companies or countries that are seeking to solve the environmental or social concerns in various areas. Many investors call this type of investing socially responsible investing, as ESG is typically a term used by professionals in the financial industry, not by investors. What level of interest do wealthy investors have regarding this type of investing and how do investors typically choose to invest in this specific strategy?
Spectrem Group conducted research on this topic with wealthy investors a few years ago, and again with the wealthiest of Americans, those with a net worth in excess of $25 million, in the past year. In 2018 two-thirds of wealthy investors were familiar with the concept of ESG investing. Professionals are the most aware of what ESG investing is, with 82 percent indicating they knew what socially responsible investing was. Educators were the least familiar with socially responsible investing, with only 63 percent being familiar.
Despite the fact that Educators are the least familiar with this type of investing, they are the most interested in actually investing in this manner. When investors were asked to gauge their level of interest in learning more about socially responsible investing on a scale from 0-100, with 0 being no interest, and 100 indicating great interest, Educators gave a rating of 43.56, while Professionals indicated a rating of 29.64.
How are wealthy investors accessing this type of investment option? Among the wealthiest of investors, those with a net worth in excess of $25 million, 48 percent have established and funded a Donor-Advised Fund, while 41 percent have created and funded a Private Foundation. That percentage is highest among Millennials and Gen X, which is not surprising given younger investors are more interested in learning more about socially responsible investing, as evidenced by the chart above.
Socially responsible investing has been around for decades, while the advent of ESG investing, and the subsequent increase in visibility of this type of investing philosophy, has only been around for less than 20 years. Given that this investment choice is fairly new it is likely there will continue to be increased interest and growth. Investors who are interested in learning more about this evolving investment option are wise to discuss this topic with their financial professionals and ensure that their goals of ESG investing are being met through the investments that are in their portfolios.