How many times have you seen the headlines or heard stories about a company exposed for bad behaviors when it comes to environmental, social and governance (ESG) issues? From waste disposal practices, unsafe labor conditions for workers or salary and bonus structures, the issues are many.
It’s relatively easy to think of a recent example where a company has been criticized for business practices that consumers deem unethical. But while certain consumers vocalize their unhappiness with the company’s activities, how many are actually taking action with their money — whether that means taking their business elsewhere or pulling their investments? Surprisingly few, according to the new ESG Investor Sentiment Study from Allianz Life.
While a majority of Americans (nearly 80%) said they “love the idea of investing in companies that care about the same issues” they do, fewer are actually putting their money where their values are.
Across a list of 16 ESG-related topics, a majority of people said each issue was important in their decision to invest in a company, yet when asked if they have ever intentionally made an investment decision based on those same issues, a large discrepancy exists, with fewer than half saying they have taken action in many cases.
For example, 84% of people said the working conditions of employees were an important factor when making a decision to invest in a company, yet only 42% of people have either stopped investing to reprimand or chose to invest in a company to reward it because of those practices. Similarly, 76% of people said a company’s natural resource conservation efforts were important in their decision making, but only 44% of people have actually taken an investment action related to it.
The only issue where people seem to be taking investment action is in connection with a company’s donations to political candidates/PACs. Here, 49% say the topic is important in their decision to invest in a company, but more people (53%) say they would take some action — whether it be in support of or a rebuttal — in response to the company’s donations to political candidates/PACs.
While generally there has been an increased focus on ESG and socially conscious investing over the last few years, it’s curious why these discrepancies between thoughts and actions exist. The answer might be that ESG information is difficult for consumers to find. In the study, 76% say that they agree “it would take a lot of effort for me to research companies included in ESG investments.” In addition, a lack of uniform standards makes it difficult for people to assess how companies are performing, with 68% saying “I don’t know how I would evaluate if the companies included in an ESG investment care about causes I support.”
However, when people feel strongly about a topic and they are informed about misdeeds, they are ready to let their wallets do the talking. According to the study, 71% said they would stop investing in a company if it behaved in ways they consider unethical.
ESG and socially conscious investing have become increasingly mainstream in the past few years, it’s not just because consumers want to support companies that they feel are doing good. In fact, 74% believe an ESG investment strategy is “not only one that you can feel good about, but one that makes long-term financial sense.”
Looking forward, over half of people who do not currently have money in ESG investments say they would be interested in having at least some money in them.
In the meantime, socially conscious investors can work with their financial professional to discuss what the most important ESG issues are to them, and how ESG investing might fit within their portfolio. A financial professional can also point to resources that may help shine a light onto an organization’s ESG activities — whether they be good or bad.
As consumer demand increases and an even greater lens is put on organizations’ business practices, we can expect that companies who want to do well by doing good will respond proactively. By making ESG-related information more readily available to consumers, businesses can build more awareness and goodwill about the positive things they do, which can help when they face challenges that could make investors look elsewhere.
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