Socially responsible investing – commonly referred to environmental, social and governance (ESG) investing – is gaining traction among institutional investors as well as individuals. According to a recent Natixis report, the percentage of institutional investors that implement ESG approaches increased by 18% from 2019 to 2021. Similarly, Natixis reports that a growing number of individual investors are interested in ESG. Though the names of large institutional investors adopting ESG approaches are often widely publicized, there is less research surrounding the question of which individual investors are driving this interest (and therefore increase in assets). Keeping this in mind, SmartAsset took a closer look at the characteristics of individual investors who are interested in ESG.
Specifically, we examined how investor demand for socially responsible investing strategies varies by six factors: years from retirement, sex, savings, income, level of investment knowledge and geographic region. Using SmartAsset data, we calculated the distribution of individuals who express different levels of socially responsible investing interest (“Must have,” “Somewhat interested” and “Not interested”) according to each factor. For more information on our survey, its results and how we put the findings together, read the Data and Methodology section below.
- Close to three in four respondents reported some level of interest in socially responsible investment strategies. SmartAsset data shows that about 27% of investors looking for a financial advisor say that socially responsible investing is a “must have.” An additional roughly 46% of investors say that socially responsible investing is “nice to have” when putting together a financial plan.
- Women are about 11% more likely than men to express ESG interest. Our data shows that about 79% women are likely to say that socially responsible investing is a “must have” or “nice to have.” Meanwhile, less than 68% of men report ESG interest, responding that socially responsible investing is either a “must have” or “nice to have.”
- An individual’s level of investment knowledge is the greatest indicator of interest in socially responsible investing. Compared to other demographics (i.e. age, sex, savings, income and geographic region), our logistic regression model (estimating the probability of an event based on prior data) shows that interest in socially responsible investing varies the most according to an individual’s reported level of investment knowledge. Individuals who are “very comfortable” with investing are much more likely to have a strong opinion on ESG relative to individuals who are “not comfortable at all” or only “somewhat comfortable” with investing.
Younger individuals are more likely to be interested in socially responsible investing than their older counterparts. Close to 32% of individuals over 30 years away from retirement reported socially responsible investing is a “must have” when building out a financial plan. Meanwhile, only about 24% of retired individuals say socially responsible investing is a “must have.” The chart below shows differences in ESG interest according to age, comparing individuals who are over 30 years away from retirement and individuals who are already retired.
As previously noted, women are more likely to be interested in ESG investing than men. Close to 29% of women say that socially responsible investing is a “must have” compared to less than 23% of men. Additionally, a slightly higher number of women say that ESG investing is a “nice to have” relative to men (49.84% vs. 45.03%). The bar graph below shows how our model expects men and women to answer the question, “Is socially responsible investing important to you?”
Following age and sex, we considered how interest in socially responsible investing varies by socioeconomic status. Our data shows that savings and income are generally inversely correlated with ESG interest. That is, individuals with lower savings and incomes report more interest in ESG, while individuals with higher savings and incomes report less interest. This pattern is not, however, true across the board. For instance, roughly 28% of individuals with savings exceeding $5 million say that ESG investing is a “must have,” compared to about 18% of individuals with savings between $1 million and $5 million. It’s important to note that the sample size among respondents with savings in each of those brackets (i.e. $1-$5 million and $5 million+) is much smaller than the other four savings brackets in our study.
As previously noted, level of investment knowledge affects ESG interest the most across the six factors we considered, as there is the largest variance in responses. Many individuals who are “somewhat comfortable” with investing fall in the middle of the road when it comes to ESG, with 53.70% saying it is “nice to have.” This is relative to only about 38% of individuals who are “very comfortable” with investing choosing that same response. The distribution of responses by individuals who are “not comfortable at all” with investing is closer to the distribution of responses individuals who are “very comfortable” with investing – more than it is to those who are “somewhat comfortable.” Of individuals who are “not comfortable at all” with investing, 22.82% say the ESG is a “must have,” 43.37% say it is “nice to have” and 33.81% say it is “not important.”
Finally, we consider socially responsible investing interest according to the four main Census-designated regions: Northeast, South, Midwest and West. According to SmartAsset data, interest in ESG and related strategies varies only slightly across these four regions. About 73% and 75% of individuals in the Northeast and West, respectively, expressed interest in socially responsible investing, compared to roughly 72% of individuals in both the South and Midwest. These results indicate that though differences in ESG interest according to geographic region are statistically significant, the region in which one lives is generally not a strong predictor of socially responsible investing interest.
Data and Methodology
Data for this study comes from SmartAsset’s financial advisor matching tool. All responses come from January 1, 2021 through June 31, 2021.
After calculating the predictive probabilities across all six demographics (i.e. years from retirement, sex, savings, income, level of investment knowledge and geographic region), we tested for statistical significance for each category by running a chi-square test for independence. For each demographic, we found a statistically significant p-value (i.e. p <0.05) and the null hypothesis was subsequently rejected. This means that ESG interest is dependent on years from retirement, sex, savings, income, level of investment knowledge and geographic region. We additionally used a multinomial logistic regression model to determine how the factors work together as ESG indicators.
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