How Investors Feel About ESG Initiatives
Environmental issues, like water quality, topped social and governance issues for investors recently surveyed.
How Investors Feel About ESG Initiatives
A survey finds that investors’ attitudes vary widely by age, wealth and the specific ESG issue
Environmental issues, like water quality, topped social and governance issues for investors recently surveyed.
ILLUSTRATION: ROB DOBI
By Lisa Ward
Nov. 2, 2022 8:00 am ET
Big asset-management companies have increasingly used their voting power as shareholders to encourage companies to adopt environmental, social and governance initiatives.
But is that what their clients want?
A new research survey by Stanford University sought to better understand individual investors’ views about ESG investing. It found that investors’ support for ESG measures and their willingness to potentially lose money in that cause varied by their age and wealth, as well as the particular ESG issue.
Investors 58 years old and over were the least likely to support ESG objectives in general, and those between 18 and 41 were the most likely—a difference that showed in their willingness to put their savings at risk to support various initiatives.
For instance, more than one-third of the younger investors said they would be willing to lose 11% to 15% of their retirement savings to encourage companies to have gender and racial diversity mirroring the general population, but only 3% of the older investors said they would forfeit that amount for that goal. About two-thirds of the older investors said they were unwilling to lose any money to support diversity.
Timing counts
“Older investors want fund managers to generate financial returns to support their spending needs during retirement and don’t have a lot of time to recoup big losses,” says David Larcker, a professor at Stanford’s Graduate School of Business, a fellow at the Hoover Institution, a public-policy think tank, and one of the researchers. The authors surveyed 2,470 investors in the summer of this year, with savings ranging from $10,000 to more than $500,000.
Focused Investing
Investors who do/don't own any mutual funds or exchange-traded funds that restrict themselves to socially responsible investing
Source: Courtesy of Stanford Graduate School of Business, Rock Center for Corporate Governance at Stanford University and the Hoover Institution
The survey also found that wealthier young investors tended to be the biggest ESG champions. For example, young investors with at least $250,000 under management said on average that they would be willing to lose about 14% of their retirement savings to have companies reduce carbon emissions to net zero by 2050. But young investors with savings of less than $50,000 said on average they would be willing to lose 6% to accomplish that goal.
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The type of ESG initiative also mattered to the investors surveyed. They cared more about environmental issues, like water quality, than social issues, like equal opportunity, and they cared about governance the least. Prof. Larcker believes that’s because investors could be personally affected by a big storm, forest fire or gender bias in pay, but may have a harder time evaluating CEOs’ paychecks.
How to vote?
The survey respondents also said they wanted investment managers’ voting to reflect their personal views when it comes to ESG initiatives. To that end, 79% of the survey’s respondents with assets managed by BlackRock Inc. said they approved of the firm’s using its voting power to promote diversity on corporate boards.
But fully reflecting their clients’ views on ESG initiatives remains a challenge for investment managers, given the range of investors’ positions on the issues. Investment managers could split their votes to reflect individual investors’ different perspectives, Prof. Larcker says. For instance, that could mean voting 70% of their shares in a company in favor of a specific ESG proposal and 30% of their shares against the proposal.
Average market-return expectations
Source: Courtesy of Stanford Graduate School of Business, Rock Center for Corporate Governance at Stanford University and the Hoover Institution
Investment managers also could try to give their clients a better understanding of what they have to be willing to risk to support an ESG agenda, Prof. Larcker suggests. That could entail making it clear how voting choices panned out financially and from an ESG perspective, he says: “Did a vote improve or hurt the company’s financial performance in the short or long term? Was there a tangible effect on the environment or on employee diversity?”
“Fund managers need to acknowledge that there is likely to be some trade-off between ESG and financial returns,” he says, “and that trade-off may matter to individual investors.”
Attitudes About ESG
How investors are willing to risk their investment dollars to achieve goals when it comes to environmental, social and governance issues
Environmental
How much investors with $100,000 in retirement savings would be willing to lose to have the companies they are invested in...
...change from industry-standard carbon emission levels to a ‘net zero’ by 2050.
How much investors with $100,000 in retirement savings would be willing to lose to have the companies they are invested in...
...change from industry-average levels of gender and racial diversity to mirror the diversity levels of the general population
More than $15k
None
2
1
5
5
12%
13
15
Between $1k and $5k
21
36%
Between
$11k and $15k
26
24
17
70%
27
25
Between
$6k and $10k
Baby Boomers+
Gen X
Millennials and Gen Z
42-57
58+
Ages 18-41
...change from industry-average gender wage inequality to no gender wage inequality
2
1
5
7
13
13%
16
35%
24
21
25
66%
18
26
29
Baby Boomers+
Millennials and Gen Z
Gen X
..be required to provide the following to all employees: healthcare coverage for domestic partners, parental leave, onsite daycare, flexible work hours
3
1
4
10%
8
13
16
32%
28
23
30
58%
19
28
27
Baby Boomers+
Millennials and Gen Z
Gen X
Governance
How much investors with $100,000 in retirement savings would be willing to lose to have the companies they are invested in...
...be required to separate the chairman and CEO roles
2
1
More than $15k
None
6
4
13
18%
14
Between $1k and $5k
17
Between $11k and $15k
42%
20
15
23
76%
26
23
Between
$6k and $10k
Baby Boomers+
Millennials and Gen Z
Gen X
Ages 18-41
42-57
58+
...be required to have all board members with no personal or business relations with the company (other than the CEO)
2
1
5
4
13
17%
14
18
40%
21
17
24
74%
25
25
Baby Boomers+
Millennials and Gen Z
Gen X
...limit the number of other board positions their directors can hold to two or less
2
1
4
4
12
18%
13
15
18
42%
18
78%
26
25
23
Millennials and Gen Z
Baby Boomers+
Gen X
Source: Courtesy of Stanford Graduate School of Business, Rock Center for Corporate Governance at Stanford University and the Hoover Institution
Ms. Ward is a writer in Vermont. She can be reached at reports@wsj.com.
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