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What is Motivating Investors to Choose ESG Opportunities?

September 15, 2020

The demand for responsible investing opportunities continues to grow in the United States. Here’s the latest on environmental, social and governance (ESG) investing.

United States investors are looking for responsible investing (RI) opportunities, pouring $20.6 billion into environmental, social and governance (ESG) focused funds. This is four times as much as in 2018, and although aligning investor values with investment choices is not new, it seems that the current environmental and political landscapes are important factors in investors’ decisions today.

ESG Refresher

An exciting investment strategy known as sustainable investing integrates environmental, social and governance factors into investment processes and decision making.

ESG includes:

  • Environmental- Companies that perform as stewards of the natural environment. Factors include climate change, energy efficiency, waste management, carbon emissions, air and water pollution, biodiversity and more.
  • Social- Companies that manage relationships considerately with their employees, suppliers, customers and communities. Social issues include supply chain management, human rights, health and safety, gender diversity, data protection and privacy and more.
  • Governance- How a company deals with leadership, audits and internal controls, executive pay and shareholder rights. Governance issues include lobbying, board composition, business ethics, executive compensation, and more.

So, what is motivating investors to choose RI opportunities?

Performance. Investing in RI not only satisfies an investor’s personal interests, it also satisfies their wallets. About 32% of advisors have reported that in the past year, portfolios with RI have yielded above market-rate returns. Advisors are also seeing that investors including RI in their portfolios typically outperform those without.

Protecting the Environment. Investors feel that companies should be proactive when it comes to safeguarding the environment, specifically managing against the risk of pollution, spills and other disasters.

Governance. Governance represents the “G” in ESG and is defined as the diversity, sustainability and equity associated with a company’s corporate structure and board. The current pandemic’s impact on global markets is drawing attention to companies’ practices and abilities to handle a crisis.

Sign of the Times. The majority of investors believe the country is in need of political and social change and feel more motivated for their voices to be heard and make a difference.

Advisor Education. Advisors are cued in on the rising interest in RI and have taken proactive steps to educate themselves and discuss options with their clients. Today, 85% of advisors say they have knowledge of RI concepts.

What does the future look like for responsible investing? Well, surprisingly enough, it’s not future generations who are taking the most interest in RI. Instead, it’s the Gen Xers who have taking the greater interest in ESG investing.

Interested in adding ESG investments to your portfolio? Talk to our advisors on the KLR Wealth Team.

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