Is the World Going Green?

3/1/2022

It is nearly impossible to turn on the television without seeing ads for car manufacturers starting to offer more and more electric vehicle options.  This has been even more noticeable with how gas prices have skyrocketed over the past several months, leaving many investors questioning their vehicle choices, or our dependence on oil in general. Is the desire to “go green” or minimize one’s carbon footprint of great importance to wealthy investors, or could this increased interest in minimizing reliance on fossil fuels simply be due to energy inflation costs?

Investing in a more socially responsible or environmentally responsible way has been around for many years, with a consistent but small following. Starting as socially responsible investing, with a strong focus on avoiding “sin” stocks, this industry has evolved from there, with a huge push towards being environmentally responsible. Spectrem Group recently did a study with wealthy investors on the topic of ESG, which stands for Environmental, Social, Governance. This is a method of investing that focuses on one or many of these standards as a component of investment selection.

Eighteen percent of wealthy investors have interest in ESG investing in the future, according to Spectrem’s recent research. Women are more likely than men to be interested in ESG investing in the future, with 28 percent of women being interested in investing in the future, compared to only 14 percent of men who are interested. Differences are the most significant by age, with only 11 percent of WWII investors being interested in ESG investing, while a third of Millennials are interested in investing in ESG investing.

Thirteen percent of wealthy investors are more interested in ESG investing than they have been in the past. The primary reason these investors are more interested in ESG investing is that they are starting to care more about these topics than they used to, while over a third of investors feel it is a more common investment choice than it used to be.

Investors are not equally interested in each component of ESG. Governance is of the least interest to investors, then Social. Environmental is of the greatest level of interest to investors. Within the Environmental topic there are several principles involved in it and also have varying levels of interest among investors.

Four of the principles of Environmental are energy efficiency, investing in carbon offsets, reducing carbon emissions, and using sustainable materials in new buildings or remodels. Forty-four percent of investors feel that energy efficiency is the most important principle in ESG, while 38 percent feel that reducing carbon emissions is the most important. Only five percent of investors feel that investing in carbon offsets is the most important principle of ESG investing.

As interest continues to increase in the environment it is important for financial providers to ensure that offerings are available to investors that align with their moral and personal objectives. Financial providers should focus on the environmental components of ESG as that is of greatest interest to investors.