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Sustainable Investing Myths Debunked

Morningstar research into investors' attitudes towards environmental, social and governance issues unveils some surprising findings

Ray Sin 23 April, 2019 | 2:09PM Salman Ahmed

Solar panels and sustainable investing

The popularity of sustainable investing – the use of environmental, social, and governance (ESG) factors to assess investing alternatives – has grown tremendously over the past few years. And while much of this growth has been fuelled by institutional investors, interest in sustainable investing has also expanded among retail investors.

Relying on stereotypes that millennials and women are most interest in ESG investing may ignore a large, untapped market for sustainable strategies among retail investors. It’s time to update the narrative that ESG is not mainstream – Morningstar research finds that most investors, across ages and genders, have clear preferences for ESG investment products.

Interest in sustainable investing is sometimes measured with survey questions that go something like, “On a scale of one to five, how interested are you in sustainable investing?” This kind of question has a well-documented limitation, because it can create social desirability bias – the tendency  for people to respond in a manner in which they think will be viewed favourably by others. For example, people may not be interested in sustainable investing, but to avoid being judged negatively by others they will respond that they are. This bias may have distorted the results of previous survey-based studies and led to some of the misconceptions around ESG that we address here. 

Gender and Age

Our results indicate that gender isn’t a useful gauge for determining interest in sustainable  investing. We found that while women have a slightly stronger preference for sustainable investing than men, which was mainly driven by more women being especially passionate for sustainable investing, the difference between the weighted averages was small. Furthermore, this small difference disappeared after controlling for income, age, political ideology, religiosity, risk tolerance, financial literacy, and other socio-demographic variables.

Our results also throw cold water on the idea that different generations have substantially different preferences for sustainable investing. We compared the average sustainability preference scores of three generations: millennials, generation X, and baby boomers. The average preference score for millennials and gen X were statistically equivalent, and while millennials, on average, showed a slightly stronger preference for sustainable investing when compared with baby boomers, the statistical significance between baby boomers and millennials didn’t exist after including socio-demographic variables.

The dominant industry narrative says that interest in sustainable investing among retail investors is confined to a niche market of mostly millennials and women. Our results suggest that there may be a broader appetite for sustainable investing than previously thought.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Ray Sin  

is a behavioural scientist with Morningstar

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