The majority of investors believe the main reason to invest sustainably is to make bigger profits, a major global study has found.
The findings suggest investors increasingly believe that backing sustainable investments, those companies that are most focused on managing environmental, social and governance issues, will deliver better results rather than just be a choice of conscience.
The Schroders Global Investor Study 2018 (GIS), which surveyed more than 22,000 investors in 30 countries also covered definitions of sustainable investing and highlighted the barriers preventing people from investing more in sustainable investments.
The growing interest in sustainable investing was particularly pronounced among experienced investors. The study found that people who feel they have higher levels of investment knowledge are both investing more of their total portfolio in sustainable investments and expecting higher returns on their entire portfolio.
People who consider themselves expert/advanced investors said they were investing an average of 42% of their portfolio in sustainable investments and expected an annual return on their entire investment portfolio of 10.9%, on average. That compares with 32% and 8.8%, respectively, for those people who consider themselves beginner investors.
The study also revealed generational patterns. Millennials said they were investing more in sustainable investments as a proportion of their entire portfolio than older generations other. People aged between 18 and 36 said they invested an average of 41% of their portfolios in sustainable investments, compared with 35% for those aged 37-54. For those aged 55 and over it was 34%.
What is sustainable investing?
Sustainable investment has seen a huge increase in interest in the last decade, but definitions in this area can be confusing. We asked investors what phrase best described “sustainable investing” and found some sophisticated views.
More than half (52%) said that it was about investing in companies that are likely to be more profitable because they are proactive in preparing for environmental and social change.
Under half (47%) said it was about investing in companies they thought were best in class when it comes to environmental or social issues or how the company is run.
A quarter (25%) said it was about avoiding so-called “sin stocks”, companies involved in alcohol, tobacco or weapons manufacturing. Only 9% had no idea what sustainable investing is.
Who invests the most in ‘sustainable’?
At the country level, people in the US (47%) said they invested more in sustainable investments as a proportion of their entire portfolio than any other country.
In Europe the Swedes (45%) said they invested the most, while China (45%), South Africa (45%) and Indonesia (45%) invested the most among emerging markets. Japan (24%) invested the least.
Emerging market economies – including Brazil and India – where social unrest and environmental challenges are particularly acute tended to invest the most in sustainable investments. These difficulties may have helped sharpen attention on such issues.
European countries and Asian countries such as South Korea, Hong Kong and Japan that are considered more developed financial markets invested the least in sustainable investments.
So what is stopping sustainable investing from growing rapidly?
The study also found that globally 64% of people have increased their allocation to sustainable investments in past five years. Despite that, barriers to investing sustainably remain. Investors cite lack of information and a limited number of sustainable funds as a key reason.
Asked what if anything stops them from investing sustainably, the top three responses were:
Jessica Ground, Head of Sustainability at Schroders, said:
“We have long known that investors are interested in sustainable investment funds and that the interest is growing, but the amount of money flowing in has been relatively muted. This study goes some way in explaining why that might be.
“It seems clear that everyone involved in the investment industry will need to work together to improve the availability, transparency and advice around these funds.
“What’s encouraging is that investors have a sophisticated understanding of sustainable investment. They realise that running a business sustainably by definition gives it better chance of success in the decades to come. Essentially, most investors now believe that sustainable investing can help them achieve good returns.”
Schroders commissioned Research Plus Ltd to conduct, between 20th March and 23rd April 2018, an independent online study of 22,338 investors in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, the UK and the US. This research defines ‘investors’ as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last ten years. These individuals represent the views of investors in each country included in the study.