According to Wikipedia, environmental, social and governance (ESG) refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk).
ESG investing focuses on companies that support environmental protection, social justice, and ethical management practices. While ESG investors value returns, they do not prioritize profits above supporting companies that fit into their ethical frameworks.
Different ESG investors follow different trends in ethical investing. For example, some ESG investors are environmentally focused and prefer to put their money into alternative energy and green companies. Others seek out companies that promote diversity, economic equality and other human rights issues. Then there are ESG investors who focus on companies’ management practices, looking for businesses that employ practices such as restricting management pay to reasonable levels and providing work/life balance to employees.
Data indicates that ESG investing is a priority among younger investors, especially millennials. But the results are mixed with older investors.
AAII Weekly Survey Question
To get an idea of the emphasis our readers place on ESG investing, last week’s survey question asked:
How important are environmental, social and governance (ESG) factors to you when making an investment:
Here are the results of the survey:
In all, 1,505 readers participated.
A slight majority of our readers–52%–say that ESG is not an important factor when making investment decisions. Only 8% say that ESG factors are very important when making an investment while the remaining 39% say ESG factors are somewhat important to them when making an investment.
Weekly Special Question
To get a better idea of why our readers do or don’t take ESG factors into consideration, last week’s special question asked:
Why do you—or don’t you—take any ESG issues into consideration in your investment decisions?
In all, we received 239 responses.
Breaking down the responses to the special question, roughly one-fifth (21%) say that ESG factors matter to them when making investment decisions.
Among this group, two-thirds say that they take ESG issues into consideration when making investment decisions because they feel that helping the environment and society is the right thing to do.
Among the remaining 79% of respondents who say ESG issues do not play a role in their investment decisions, more than 41% say they are only concerned with returns when making investment decisions.
Another 14% of those who do not consider ESG factors when making investment decisions say there is too much emotion involved to make rational decisions.
Interestingly, 12% of those who do not consider ESG matters when making investment decisions say they go support ESG issues, just not when it comes to investing.
There are also 11% of those who do not follow ESG investing who believe these factors do not have an impact of share prices.
Here is a sampling of the responses from our readers as to the most important financial decision they have made to lessen the potential of their biggest retirement concern coming to pass:
- “Investment is about making money. If the companies I invest in are do-gooders or tree huggers, that’s great but not the reason I invest.”
- “There are plenty of good stocks to buy. Why contribute to global warming or support unethical behavior? I care more about my children’s future and quality of life than making a few quick bucks.”
- “I will not invest in stocks that provide products or services that I consider personally offensive.”
- “Many of the ESG issues are a farce!”
- “I prefer to invest in companies that are committed to protecting the environment and their employees. I feel they are better organized to provide constant dividends and growth.”
- “Investing is hard enough with many variables and the subjectiveness of ESG just adds to that.”
- “I address those concerns outside of my investments.”
- “Decisions regarding finances are logical, not emotional.”
Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.