July 13, 2018
Individual investors have little interest in, and understanding of, “socially responsible” investing, according to a new report from investment industry research firm Spectrem Group. Titled Investor Perceptions of Socially Responsible Investing, the study finds that not only do individual investors not have much interest in socially responsible investing, but only 25 percent of investors believe that socially responsible investments could provide a greater return than other investment products.
As socially responsible investing has increasingly become a focus of large institutional investors, this finding is troubling for those individual investors often left in the dark about where their assets are being allocated. According to the study, only about two-thirds of investors know what socially responsible investing is, while just eight percent of investors say their advisor has ever discussed the option of a socially responsible investment strategy with them.
And yet, 11 of the world’s 12 largest passive investment management firms are increasingly engaging on politically motivated issues. Meanwhile, the number of shareholder proposals related to ESG issues has increased 60 percent since 2003.
Large institutional investors placing greater and greater emphasis on ESG investing runs contrary to what the majority of individual investors are interested in participating in, and are therefore risking what these individual investors are mostly focused on – maximizing profits. A survey of pension fund investors in New York (New York City pension fund system) and California (California Public Employee Retirement System, or CalPERS) found that 86 percent of CalPERS members and 79 percent of NYC pension members believe the funds should focus on returns, not political agendas. However, four of the nine worst performing private equity funds in CalPERs portfolio were ESG focused.
It’s not only the United States where individual investors are missing out on profits due to ESG investing. According to a recent Financial Times article, Norway’s oil fund – the world’s largest sovereign wealth fund – has averaged lower yearly returns over the past decade, totaling roughly $3.7 billion, because of its politically motivated investing. As the article states:
“The fund recently laid out the results of its exclusions, saying it had lost out on just under NKr30bn ($3.7bn) in returns since 2006 because of the product exclusions on the likes of coal and nuclear weapons, equivalent to lower the return by 0.1 percentage points a year for the past decade.”
Spectrem’s report is the latest example highlighting the need for greater advocacy and transparency for Main Street investors. It’s time for institutional investors to stop experimenting with people’s retirements with politically motivated investments, and instead focus on doing what is best for retail investors.