Investing with a conscience is catching on
Socially responsible investing has really blossomed in the past few years. What used to be viewed as a niche investment philosophy is now firmly planted in the mainstream, with everyday consumers using their dollars to support companies that align with their personal values around sustainability and social progressiveness.
But beyond the day-to-day choices — like what stores to frequent and what products to purchase — consumers are turning to environmental, social and governance (ESG) standards to help inform their investment decisions.
In a recent study by Allianz Life, nearly 80% of people said they “love the idea of investing in companies that care about the same issues” they do, and 73% feel it’s a way to reward a company’s good behavior. On the flip side, 71% said they would stop investing in a company if it behaved in ways they consider unethical.
While a lot of the buzz around ESG tends to focus on the environmental aspect (climate change activism, the move toward renewable energy, eliminating single-use plastics, etc.), the Allianz Life study found that people care just as much about social and governance issues.
When asked about the importance of a variety of ESG topics in making a decision to invest in a company, 73% cited environmental concerns like natural resource conservation or a company’s carbon footprint/impact on climate change as important factors.
The same percentage emphasized social issues, such as working conditions or racial or gender equality, and a similar amount (69%) noted governance topics — such as transparency of business practices and finances or level of executive compensation — as influential elements in their decision of whether to invest in a company.
Walking the walk
While people say they care about all these issues, when it comes to investing, are they actually walking the walk? The short answer is no. After all, it’s easier to say something than to commit to doing it — especially when it comes to money.
For example, 84% of people in the study said that a company’s ability to provide safe working conditions for its employees was important in their decision to invest, but only 42% said they have actually taken action and chosen to invest or not invest based on that business practice.
Why? Some may face challenges doing research and actually finding out more about ESG factors, with over three-quarters of Americans (76%) saying they don’t know how to evaluate if the companies included in an ESG investment are good corporate citizens or not.
Over half say they think it would be difficult to find information on issues like the transparency of a business’ practices, its record on racial equality, and the working conditions of their employees. Others cite a lack of uniform standards on how a company qualifies for ESG investing.
However, as the demand for ESG increases, companies may respond by increasing their transparency efforts or increasing communications on corporate social responsibility efforts.
When it comes to socially responsible investing, some discrepancies still exist. And while not everyone is on board the ESG train, over half of people who do not currently have money in ESG investments say they would be interested in having at least some money in them.
Nearly three-quarters of people believe an ESG investment strategy is not only one that you can feel good about, but one that makes long-term financial sense.
This is another aspect of ESG investing — the idea that companies with strong ESG practices generally are more sustainable and align with longer-term investing.
How to get involved
Everyday investors looking to join the ranks of impact investors have an increasing number of resources available to learn more about these initiatives and take the next step, such as the United Nations Sustainable Development Goals Knowledge Platform or the Principles for Responsible Investment.
People also can start by speaking to their financial professional and expressing their interest in ESG investing. Discuss goals and what issues might be most important — environmental, social or governance bucket, or some combination — and together create an ESG strategy that makes sense for a specific financial situation.
As demand grows, more companies will feel the pressure to accommodate consumer demand and keep shareholders happy.
This article was written by and presents the views of the author, not the Kiplinger editorial staff. Check adviser records with the SEC or with FINRA.
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