Interested but sceptical: What younger investors think about ESG

AIC canvasses investors and finds stereotypes don't always hold true

When considering attitudes to ESG by age, it’s easy to fall into stereotypes. Our research shows that, yes, in very broad terms, younger investors do care slightly more about ESG. But it’s easy to exaggerate how much they care, as well as to overstate the indifference of the older generation.

For example, we know from our research that more mature investors have a keen interest in governance issues such as transparency, disclosure and the independence of boards. Many also care about the environment and hate waste and pollution.

Younger investors are by definition less experienced, and may not have made the connections between issues they care about and how their money is invested. Compared with retirees or those whose children have left home, younger investors have less time to enquire into the ESG credentials of their investments. Among the under-40s, more hold cryptocurrency (77%) than mainstream funds (47%) – hardly compatible with the image of an army of eco-warriors.

Admittedly, I am now reversing the stereotypes to prove a point, but we need to beware of received wisdom when we consider how demographics interact with ESG attitudes.

Our recent survey of 400 private investors aged between 20 and 40 reveals that this age group is generally favourable to ESG as a concept, but they are not yet putting their money behind it in a big way.

Barely a tenth (11%) of respondents are currently investing in a way that they consider takes into account environmental, social and governance factors. Among this group, the search for better performance is an important driver, alongside the desire to invest responsibly.

Other respondents are split between those who are not interested in ESG at all (32%), are interested but yet to do anything about it (29%) and those who have been researching ESG investing but are yet to commit money to it (23%).

The main barrier to investing sustainably, by a country mile, is lack of knowledge (53% of respondents). Greenwashing (25%) is also a concern.

One respondent in her 30s with a five-figure sum invested said: “Even though I support [ESG investing] in principle, I haven’t gone out of my way to check my current investments, which I guess speaks to a scepticism that I have.”

In a way, this mixture of lack of knowledge, indifference and mild scepticism shouldn’t surprise us. Outside our investment industry bubble, ‘normal’ people (and perhaps the young in particular) just have less mental bandwidth to devote to the issues we constantly talk about – whether it’s ESG, interest rates or asset allocation.

But before we conclude that ESG isn’t really a big deal for this cohort of investors, it’s worth pausing to consider that a minority are strongly committed to investing sustainably.

One respondent commented: “I have had most of my investments in ESG for a few years now… I just don’t want my money working in a negative way in the world.” Another said: “I am passionate about our impact on the environment and want to do anything I can to help. Companies that work towards a better future for the planet deserve the most investment.” There is clearly an addressable market here.

Then there are those who don’t invest yet, but may do so in future. We asked 200 non-investors aged between 20 and 40 if having an option to invest sustainably would encourage them to invest in general. Nearly half (49%) said yes.

ESG investing – in the sense of allowing people to align their investments with their values – is still in its infancy. Our research suggests that most younger investors feel they lack the knowledge to invest sustainably, even if they want to – and many also lack confidence in sustainability claims from product providers.

This clearly comes back to the regulator. The UK’s Financial Conduct Authority recently announced its policy statement on disclosure and labelling would be delayed to Q3 this year. Let’s hope it’s worth the wait, because a decent labelling system would clearly help time-poor younger investors make more informed choices – and, if they wish, more sustainable ones.