Do Investors Care About Sustainability? (2024)

FAQs

Do Investors Care About Sustainability? ›

The Ethical Investor: Confirmed – ESG investors care for the environment… as long as it turns a profit. A new research paper by Wharton University found that retail investors care about a stock's ESG related activities – but only if they don't adversely affect the value of their investments.

Investors want companies to sharpen their equity story and clarify the value of their sustainability initiatives. Here's what company leaders can do. While more than 95 percent of S&P 500 companies issue a sustainability report, ¹.

Retail investors do care a lot about the ESG-related activities of the firms they invest in, but only to the extent that they impact firm performance, independent of ESG performance.

Investors benefit from sustainability reporting as it provides them with insights into a company's long-term viability, risk management, and potential for growth. This transparency helps investors make more informed decisions aligned with their values and financial objectives.

Companies that show a vested interest in the communities where they operate improve their brands' reputations and are more likely to attract loyal fan bases. These factors are all associated with sustainable, long-term growth, which makes a company more attractive to potential investors.

Critics say ESG investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. They say ESG is just the latest example of the world trying to get “woke.”

Eight in ten retail investors globally (82%) say that they are interested in investing in companies that are socially and environmentally responsible, and 72 percent want to avoid any industry that contributes to climate change.

One of the biggest criticisms of ESG is that it perpetuates what it was partly designed to stop – greenwashing.

However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.

Critics portrayed ESG investing as primarily motivated by political concerns and a potential drag on returns. Additionally, some critics have raised concerns about the complexity and reliability of ESG metrics.

What percentage of investors consider ESG? ›

89 percent of investors consider ESG issues in some form as part of their investment approach, according to a 2022 study by asset management firm Capital Group.

Investors are paying for ESG explicitly in their willingness to pay higher fees and implicitly in earning lower future returns. The key testable implication that separates these two interpretations is their diametrically opposed predictions for the link between ESG and future returns.

The Bottom Line. ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment.

There has been an increasing demand for ESG due diligence from venture capitalists and private equity investors in the pre-IPO market phase. They want to know early whether the company carries any sustainability risks that could negatively impact the value of the company.

Sustainability-focused investors wish to advance environmental, social, or governance principles, as they see value in bringing about positive change. Sustainable investing comes in many forms, including stock purchases of eco-friendly companies or investing in the formation of a non-profit.

Despite the recent challenges, ESG investing is likely to remain a trend in the years to come. As investors become more aware of the environmental and social impacts of their investments, they are increasingly seeking out investment products that align with their values.

Beliefs about ESG drive investor behaviors.

Roughly half of investors surveyed who hold ESG assets said they are primarily motivated by ethical considerations, while 80 percent of those who allocate to ESG investments report a high level of concern about climate risk.

37% of Gen Z in the United States claimed that addressing climate change was their top personal concern. This is compared to just 27% of Gen X and 29% of Boomers. Gen Z is at the forefront of climate action. When it comes to sustainability in purchase decision making, Gen Z consumers also come out on top.