A majority (60%) of investors around the world reject the idea that companies are responsible only for creating value for shareholders, according to a survey of more than 8,550 individual investors in 24 countries by Natixis Investment Managers (Natixis IM).
The findings show that investors also expect accountability from companies for their impact on the environment and society, and they want to see more action from policymakers and the private sector, including fund managers.
The Natixis IM survey, published today as world leaders are gathered in Glasgow for the climate change conference COP26, found:
- 77% of respondents believe it’s their responsibility as investors to hold companies accountable for their impact on society including climate change and inequality
- 82% of investors say that companies have a responsibility to address social issues, even more than those who say it’s the government’s responsibility (78%)
- 45% consider it important to invest in companies that are transitioning to more sustainable business models
- 67% would be more inclined to invest in funds that demonstrate a better carbon footprint, a key factor in reducing climate change
With total assets worldwide in environmental, social and governance (ESG) investment strategies reaching $1.6 trillion in 2020, Natixis IM found signs that the ESG momentum continues to build. The survey found that 21% of individual investors currently employ ESG investing strategies. Of those, 24% invested in ESG for the first time in just the past year while 33% of those who were previously invested added to their existing holdings. Nearly half (49%) of those not yet invested in ESG say they are interested in learning more.
“As ESG becomes more widely adopted and investors learn more about the different kinds of ESG investments, interest in ESG investing is growing rapidly, reinforced by positive returns from these strategies,” said Nathalie Wallace, Global Head of Sustainable Investing, Natixis Investment Managers. “With governments, nongovernmental organizations and private companies all showing increased commitment to ESG goals, these strategies can enable investors to pursue superior environmental and social outcomes and the financial performance they expect.”
The Natixis IM findings not only show greater interest in ESG but also dispel a number of myths around its adoption, including:
- Interest in ESG isn’t limited to millennials: The conventional wisdom is that ESG adoption has been driven by socially conscious millennials who want their assets to drive environmental, social and ethical change. While ESG investors do skew younger, broad adoption and interest suggests ESG now appeals to the mainstream of investors. One in four (27%) millennials say they are invested in ESG, but so do 20% of those in Generation X and 18% of baby boomers. Moreover, interest in ESG is high across all age segments, including 52% of millennials, 52% of Generation X and 44% of baby boomers.
- While Europe has led the way in early ESG adoption, the world is catching up: North American investors in ESG (28%) now lead those from Europe (22%) and Asia (22%) in ESG adoption. Within North America, US investors (32%) dominate, compared to only 16% of Canadians who own ESG investments. Current ESG investment is lowest in Latin American countries (13%), but that is likely to change over time as the region has a large number of investors (62%) who say they are interested in ESG even if they have not yet made an investment.
- Doing well is as important as doing good for ESG investors: Given the focus on global warming and sustainability, it is unsurprising that 41% of investors in ESG see it as a way to help support the environment. However, investors are pragmatic in their views. Just as many investors (37%) say ESG opens up new investment opportunities as say they want to “make a better world.” About as many say they think ESG is simply a better way to invest (35%).
- Proof of performance is convincing: Only one in five investors are still clinging to the notion that investing in ESG means sacrificing investment performance. Investor sentiment has shifted dramatically since 2017, when Natixis IM found 64% of investor surveyed believe they would need to sacrifice some return potential to have investments that match their personal values. Just 22% say a lack of information on non-financial performance keeps them from investing in ESG.
Recent data bear out ESG investing’s potential to generate outperformance. By the end of Q3 2021, the S&P 500 ESG Index had outperformed the S&P 500 Index by 3.7% for the three years ending October 3, 2021.
Fund managers and financial advisors play important role in driving sustainability and broader ESG adoption
The Natixis IM survey found that investors are deeply committed to sustainable business goals and practices. A majority (58%) of investors believe they have a responsibility to help solve social issues through their investments. Their commitment extends beyond personal responsibility to fund managers, who they hold to the same standards of active engagement with investments.
The survey found:
- 53% of investors believe the best way to send a message to a company is to sell its stock – 43% of millennials, 38% of generation X, and 29% of baby boomers have sold an investment because of a company’s poor ESG performance.
- More than half (55%) believe fund managers also should sell their shares in companies with poor ESG records.
- 74% expect their fund manager to engage with the companies they’re invested with to influence both ESG and better business practices.
ESG also increasingly is a part of the dialogue between investors and their financial advisors. Awareness of ESG is high, with few investors (17%) saying they don’t know what ESG is. Yet a larger number (41%) say don’t know enough about ESG – the top reason given by investors for why they don’t use ESG strategies or invest more in them. Natixis IM findings suggest that not only can advisors play an important role by educating clients about ESG, they can and should broaden these conversations with more clients.
While 59% investors worldwide say their advisor has spoken to them about ESG investments, and 56% say their advisor proactively has asked them about whether are ESG issues that are important to them, engagement is highest with younger investors. A notably higher percentage of millennials (68%) say their advisors has talked with them about ESG, compared to 60% of Gen Xers and 52% of baby boomers.
“Increasingly, individual investors believe the ESG investment decision-making process should involve all of the parties in investing, including financial advisors, fund managers and investors themselves,” said Dave Goodsell, Executive Director, Natixis IM Center for Investor Insight. “This is another example of how mainstream ESG has become in investing, and its potential for becoming among the most critical decision points for investments.”
The inclusion of ESG topics in the 2021 Natixis IM Global Survey of Individual Investors reflects Natixis IM’s strong commitment to growing ESG assets. As part of its 2024 strategic plan, Natixis IM aims to position ESG at the center of its activities, with a target of over €600 billion in assets under management in the sustainable or impact investing category, representing 50% of total assets under management by 2024.