Six insights from the 2021 Natixis Global Survey of Individual Investors
As the global economy experienced an 18-month run of shutdowns, lockdowns, and supply chain disruptions, ESG (Environmental, Social and Governance) investing has racked up impressive numbers. Record sales in Q4 2020 totaled $152 billion, and total assets invested worldwide reached $1.6 trillion,1 according to Morningstar. By Q4 2021 ESG strategies were on a winning streak in which annualized returns for S&P 500 ESG index outperformed the S&P 500 by 1.53% for the one year period ending October 29, 2021 and 2.06% since its inception on January 28, 2019.2
With the numbers aligned in this way, it’s no wonder that the 2021 Natixis Global Survey of Individual Investors finds that one in four of those invested in ESG say they made their first investment in the past 12 months. While performance most certainly contributed to the dramatic uptick in investment, a deeper look at the numbers shows there is much more behind investors' adoption of ESG.
Conventional wisdom says that ESG adoption has been driven by socially conscious Millennials who want their assets to drive environmental, social and ethical change. While that trend can be seen in the data from our survey of 8,550 investors in 24 countries, there’s more to it than meets the eye.
Our group of affluent investors ($100,000 or more in investable assets) is evenly split between 2,459 Millennials (age 25–40), 2,852 Generation X (age 41–56), and 2,887 Boomers (age 57–75). And while ESG investors skew younger, the difference is not all that great: 27% of Millennials say they are invested in ESG, but so do 20% of Generation X and 18% of Baby Boomers. Millennials may have been among the early adopters, but older investors are now warming up to ESG.
Investors who invest in ESG
Conventional wisdom also holds that Europe is leading the way in ESG adoption, but survey data shows that isn’t the case among individual investors. Among those surveyed we find North America (28%) is slightly ahead of Europe (22%) and Asia (22%) in ESG investment. What’s most surprising is that it is US investors (32%) who contribute to this higher number, as only 16% of Canadians report owning ESG investments.
Current investment is lowest in Latin America (13%), but that is likely to change dramatically over time as the region has a significantly large number of investors who say they are interested in ESG even if they have not yet made an investment.
While one in five globally (21%) have made investments in ESG, there are more than twice as many investors who say they are interested (49%). In fact, 62% of investors in Latin America say they’re interested, including 65% of those in in Colombia/Peru and Mexico, 60% in Argentina/Uruguay and Chile.
Just over half of those in Asia say they’re interested, including 58% in Hong Kong and 56% in Taiwan. Interest runs slightly behind in Europe (45%). While North America may have the largest number who have already invested, it’s where the smallest number (39%) say they are interested.
So, if they’re interested, what keeps them from investing? Those surveyed say the biggest roadblock to making an investment is that they simply don’t know enough about ESG (41%). This should not be confused with awareness. Only 17% in this group claim they don’t know what ESG is. What they likely need is more details on how different strategies work and where ESG fits into their own investment plans.
41% I don’t know enough
21% I’m not sure it makes a difference on non-financial issues
20% My advisor doesn’t offer ESG investments
19% I don’t want to sacrifice investment performance
17% I don’t know what they are
This need runs strongest in Latin America. In an area where interest is above 60%, half of investors say they need to know more before they invest. This includes 54% of those in Colombia/Peru, 47% of those in Chile, and 53% in Argentina/Uruguay.
Few worry about the efficacy of these strategies in addressing ESG issues. Only 21% say a lack of information on non-financial performance keeps them from investing. Fewer still are worried that ESG will hurt their financial results, as only one in five think they will have to sacrifice investment performance with an ESG strategy. Investor sentiment has shifted dramatically since 2017 when 64% of those surveyed believed they had to sacrifice some return potential to have investments that match their personal values. In fact, 2021 results show no country where more than one-quarter of investors worried about making this sacrifice with ESG investments.
Conventional wisdom might also hold that individuals want to invest in ESG solely to align their assets with their personal values, but those surveyed are just as likely to find a profit motive in ESG. Given the global focus on global warming and sustainability, it is not surprising that 41% of ESG investors say they invest this way to help support the environment. But other data demonstrates a more pragmatic view in which their support for global issues intersects with investment strategy.
Investors are just likely to say they invest in ESG to open up new opportunity as in order to “make a better world,” both 37%. Almost the same number say they look to ESG to help them align their assets with their personal values (36%) as say they think ESG is just a better way to invest (35%).
Rather than limiting their expectations on ESG to aligning assets and values, individual investors are connecting their ESG investments to current business trends, as 45% say it is important to invest in companies that are transitioning to a more sustainable business model. Sentiment for this investment thesis is surprisingly strong among older investors: Boomers (48%) are followed closely by Gen X (44%) and Millennials (43%).
In general, many investors (40%) are satisfied with the performance of their ESG investments. Most significantly, 52% of those in the US indicate their satisfaction. One potential drawback to investor satisfaction may be the outsized return expectations they have for all investments. Globally investors say they expect long-term returns of 14.5% above inflation, or about 174% of what financial advisors around the world say is realistic (5.3%).
Why do you make ESG investments?
Large numbers of investors share a strong commitment to ESG investing, but their beliefs extend well beyond personal responsibility to include the policy makers and the private sector. This comes through clearly in their views on all aspects including the E, the S and the G.
On the environmental side, investors say they would like to take action with their money. Two-thirds of those surveyed say that if a fund demonstrated a better carbon footprint, they would be more inclined to invest. Younger investors demonstrate an even higher affinity for this measure: 73% of Millennials agree that a better carbon footprint could be a key factor in their investment decision compared to 60% of Boomers.
Millennials were also more likely to say ESG factors influence their sell decisions. More than four in ten (43%) in this generation said they had sold an investment because of a company’s poor ESG performance. Only 29% of Boomers claim to have taken similar action with their investments.
On the social side of the equation, six in ten investors (58%) worldwide – particularly those in Thailand (74%), China (71%) and Taiwan (69%) – believe they have a responsibility to help solve social issues with their investments. Yet despite this high level of perceived personal responsibility, investors are more likely to say it’s government’s responsibility (78%) to address these issues. Even more investors (82%) say companies should also play a role.
Governance also weighs heavily on the minds of investors, and more than three-quarters of investors (77%) believe it’s their responsibility to keep companies accountable for their impact on society. Another 53% believe the best way to send a message to a company is to sell its stock.
Over the past 50 years there has been a prevailing view in markets that companies are solely responsible for creating shareholder value, but many investors are asking for more. In fact, 60% of those surveyed disagreed with the idea that companies are solely responsible to their shareholders, and not to society. Instead, a majority of investors indicate that they would like to see more action on ESG issues from all sides, including their fund managers.
The high expectations investors hold for themselves, policy makers, and private companies extend equally to the asset managers who run their investments. ESG integration is top of mind for a majority of investors, as three-quarters expect their fund managers to look at more than the financial aspect of a company when researching an investment. Investors also expect active ESG management with ongoing investments, as more than half (55%) believe fund managers should sell out of companies with poor ESG records.
Investors also have high expectations for their fund managers to practice active ownership with the investments they hold. Seven in ten investors worldwide expect their fund manager to vote all the shares they own. Even more (74%) expect their fund manager to engage with the companies they’re invested with to influence both better business and ESG practices.
expect fund managers to vote all the shares they own
expect their fund managers to engage with the companies in which they’re invested
With the rising number of ESG-labeled products proliferating worldwide, investor sentiment indicates that they are smart shoppers when it comes to selecting investments. In evaluating funds, they are likely to look closely at the fund’s makeup and 65% believe there are certain controversial sectors – coal, tobacco, weapons, and others – that should always be excluded from ESG products.
Increasingly, ESG investing is becoming part of the conversation between investors and their financial professional. In fact, 59% of investors worldwide say their advisor has spoken to them about ESG investments, an increase of 8% over the 51% of investors who said so in 2016. Another 56% say their advisor has gone so far as to ask if there are ESG issues that are important to them. Results from our survey suggest that advisors may want to open this line of questioning with more clients.
Most frequently, it is Millennial investors (68%) who say their advisor is speaking with them about ESG, while the same is true for 60% of those in Generation X and only 52% of Boomers. It is interesting to note that while fewer Boomers are ESG investors (18% of Boomers vs. 27% of Millennials), there is still a significant number of Boomers (44%) who say they are interested. Like the younger generation, they are likely to say the reason they don’t invest is that they don’t know enough (42%).
ask for ESG factors to be included in the investment analysis
ask about investing in companies solving big global issues
ask to invest in companies aligned with personal values
ask to exclude companies that conflict with their values
At the same time as advisors ask more about client interests, individual investors are becoming clearer in how they ask for ESG. Half take the direct route and ask for ESG factors to be included in the investment analysis process alongside other financial factors. Four in ten (42%) also ask to participate in the opportunity to invest in companies that are solving big global issues. They are also more likely to favor positive screening, by asking to invest in companies that reflect their values (41%) rather than screening out those that conflict with their values (35%).
Recent outperformance has helped to shine the spotlight on ESG investing, and the market has responded with a 30% uptick in the number of investors choosing these strategies for their portfolios. A closer look at the numbers shows that investors have a longer-term view on investing this way that looks past immediate performance benefits. At the same time, their goal for ESG investing is not just to “save the world.”
Instead, as ESG becomes more widely adopted and investors are learning more about the different kinds of ESG investments, a more holistic view is coming into focus. Call it enlightened self-interest in which individuals see that with the right ESG strategy they may have an opportunity to pursue both the values many want and the financial performance they expect.
About the Survey
Natixis Investment Managers surveyed 8,550 investors globally across 24 countries in March and April 2021, with the goal of understanding their views on the markets and investing.
An online quantitative survey of 43 questions was hosted by CoreData Research. Each of the 8,550 individual investors had minimum net investable assets of US $100,000 (or Purchase Price Parity [PPP] equivalent).
3 Natixis Investment Managers, Global Survey of Individual Investors conducted by CoreData Research, February-March 2019. Survey included 9,100 investors from 25 countries.
The data shown represents the opinion of those surveyed, and may change based on market and other conditions. It should not be construed as investment advice.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of October 2021 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.
Past performance is no guarantee of, and not necessarily indicative of, future results.
All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
Sustainable investing focuses on investments in companies that relate to certain sustainable development themes and demonstrate adherence to environmental, social and governance (ESG) practices, therefore the Fund’s universe of investments may be reduced. It may sell a security when it could be disadvantageous to do so or forgo opportunities in certain companies, industries, sectors or countries. This could have a negative impact on performance depending on whether such investments are in or out of favor.
Natixis Distribution, LLC is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.