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Sustainable investing is still in its formative stages, but it's catching on with clients, particularly those in younger demographics.
Indeed, it's a plus for advisors that certain clientele are socially astute and want their investments to reflect their values and this is cropping up among some older, more well-heeled clients, too. Overall, the evolutions of environmental, social and governance (ESG) and sustainable investing are positives for advisors because these are concepts are avenues for increasing client engagement.
Speaking of client engagement, it appears they need a bit more of that when it comes to sustainable investing. Many know they want to get involved in this style of investing, but with so much fluidity, differing scoring methodologies and index constructions, there are bound to be questions.
One of the big questions, that being are clients leaving returns on the table by turning to sustainable investments, has largely been answered with a resounding “no.” Of course, that depends on the methodology in question, but if the past couple of years has taught us anything on the sustainable investing front, it's that many of broader concepts in the space can outperform old guard broad market benchmarks.
More Education, Please
What's interesting – and it spells opportunity for advisors – is that despite all the attention sustainable investing is generating, investors haven't made big changes to their allocations to this style.
“A recent Gallup survey of U.S. adults with $10,000 or more in investments finds no change over the past year in these investors' awareness of sustainable investing,” according to the polling firm.
A big part of the issue is education or lack thereof. Some investors have heard about sustainable investors, but even more say they aren't hearing anything about it.
“A quarter of investors say they have heard a lot (6%) or a fair amount (19%) about this type of investing. Another third have heard a little about it, while four in 10 have heard nothing,” adds Gallup.
Something that's telling is that awareness of sustainable investing is essentially the same among invetors that have adivors and those that do not. It's possible to infer from that clients aren't inquiring about socially responsible investing, advisors aren't bringing it up or both.
“Awareness of sustainable investing is higher among male, younger and wealthier investors than among their counterparts. There is no difference by whether one has a financial adviser, either paid or unpaid,” notes Gallup.
There may some natural progress here as hopefully, eventually the coronavirus pandemic commands less prominence in the lexicon of daily life and in advisor/client interactions. That's a relevant point because Gallup says the pandemic is a headwind to sustainable investing interest and education.
“After initially dipping from 52% in February 2020 to 46% in May and staying at that level in August, the percentage who are very or somewhat interested is now 42%,” says the research firm. “Meanwhile, the percentage not at all interested has increased from 18% to 28%, and the 29% 'not too interested' has stayed about the same.”
Important Demographic Tidbits for Advisors
A slew of compelling demographic data points confirm advisors should not abandon the sustainable investing ship. Rather, they should use it to their advantage.
For example, male investors that say they are very or somewhat aware of responsible investing strategies outnumber women by a two-to-one margin. Translation: Opportunity with female clients.
Additionally, those in the 18 to 49 demographic are far more aware of sustainable investing than their counterparts in the 50 to 64 and 65 and up groups.
Of course, it's also notable that investors that make more than $90,000 per year and have more than $100,000 are more knowledgeable of sustainable investing than those in the alternative groups. In other words, as sustainable investing continues gaining traction, advisors (and clients) stand to benefit.
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