5 Drivers Behind the Sustainable Investing Shift
Visual Capitalist | | Dec 9, 2020
Against all odds, sustainable investing in the U.S. smashed records in 2020.
Estimated net flows reached $20.9 billion in the first six months alone—that’s nearly equal to the amount of new money invested in all of 2019.
What is driving the shift to sustainable investing? This visual dashboard from Raconteur explains five key drivers, from generational shifts to investors’ preferred strategies.
Driver #1: Millennial Investors and Personal Beliefs
Interest in sustainable investing is booming across the general population. However, there’s a clear generational trend, as well.
While the portion of each group that is “very interested” in sustainable investing has shot up since 2015, this share is significantly higher for millennials.
| Year | General Population | Millennials |
|---|---|---|
| 2015 | 19% | 28% |
| 2017 | 23% | 38% |
| 2019 | 49% | 70% |
Another correlated trend emerges with this.
See: Capitalism must be saved by capitalists, argue these pioneering ESG investors
These days, investors are more likely to follow their conscience. Acccording to a recent report by Schroders, the majority of investors will not budge on investing against their beliefs, even if returns were theoretically higher.
| Level of Investment Knowledge | |||
|---|---|---|---|
| Would you invest against your personal beliefs? | Beginner | Intermediate | Expert |
| Yes, if returns are higher | 18% | 20% | 29% |
| No, I would not invest against my beliefs. | 82% | 80% | 71% |
Driver #2: Top Themes of Interest
Powered by these personal beliefs, which categories are attracting investors? It turns out many investors are very interested in including environment-related themes into their portfolios:
- Plastic reduction: 46%
- Climate change: 46%
- Community development: 42%
- Circular economy: 39%
- Sustainable Development Goals: 36%
- Multicultural diversity: 30%
- Gender diversity: 30%
- Faith-based values: 24%
However, these aren’t the only considerations. Other themes that fit into broader ESG categories such as gender diversity or faith-based values make an appearance, too.
See:
ESG Risk Comes Into Focus Companies focus on their ESG risks to build profitability for the long term.
OECD Report Outlines Challenges Facing ESG Investing
ESG ratings are confounding. For CSOs, that’s good news
Davos 2020: Financial inclusion and fintech is key to meeting the UN SDGs
Driver #3: Which Investor Groups are Driving Interest?
Now, we turn our attention to the specific groups that are responsible for the growing momentum towards sustainable investing. This may be surprising to some, but it is institutional investors that are leading the pack by far:
| Group | Share of Group |
|---|---|
| Institutional investors | 85% |
| Institutional consultants | 39% |
| Internal stakeholders | 30% |
| High net worth (HNW) investors | 19% |
| Politicians or regulators | 13% |
| Industry trade bodies | 6% |
This also disproves a common myth that millennials are the only ones interested in the sector. Institutional investors equally want to see a double bottom line: an ROI on their money, while also making the world a more sustainable place.
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