As Environmental, Social, and Governance (ESG) investing makes strides in adoption (while also attracting attention from regulators), a lack of investor education may be hindering its growth.
A new survey from digital investing platform Betterment found that while many respondents had some level of interest in ESG investments, a large education gap still remains. The report digs into respondents’ level of understanding in ESG investments, the drivers of investing in the category, and the role employers and advisors play in educating individuals about this rapidly growing sector.
According to the New York-based firm’s study, about a quarter of respondents (26%) currently hold some type of ESG-themed investment, while 46% of those who have not sought out ESG investment options to date would be interested in doing so.
Surprisingly, more than half of respondents (54%) expressed a level of unfamiliarity with ESG, with 35% saying that they have never sought out ESG investments and are not interested in doing so. Slightly more than half indicated it was because they do not understand ESG-themed investments well enough.
Some may also share the healthy skepticism exhibited by billionaire Peter Thiel in a rant earlier this year. The PayPal founder was blunt in his observations saying, “I think that ESG is a hate factory, it’s a factory for naming enemies.” For further measure he added, “perhaps the real enemy is ESG.”
Former Vice President Mike Pence piled on in a Wall Street Journal op-ed by downplaying ESG’s popularity, claiming a “sudden abundance of liberal shareholders isn’t what’s driving this new trend of woke capitalism, and it certainly isn’t a reflection of consumer demand.” He then blamed a “handful of very large and powerful Wall Street financiers” for ESG’s rise and “an unelected cabal of bureaucrats.”
Despite these public remarks, the thirst for ESG education gap is evident with 22% of Betterment’s respondents saying that they have proactively asked their employer’s HR/benefits department if ESG investing options are available in their workplace retirement plan. Additionally, another 36% would be interested to know.
Still, advisors are likely the bridge to closing the education gap. Only 44% of respondents who work with a financial advisor indicated that their advisor has discussed available ESG-based portfolio options with them. However, nearly half (47%) of respondents said that access to ESG investment opportunities would make them more likely to work with a financial advisor, whereas only 6% indicated they would be less likely. Another 67% talk to their advisor about the causes and values that are important to them personally.
“In the face of climate change, political activism and a more acute understanding of corporations’ impact, American investors are increasingly engaged in the companies they support. One way this has come to life is the rise of ESG investing,” said Boris Khentov, Senior Vice President, Product Strategy & Sustainable Investing, at Betterment.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
