Scores of data points and surveys confirm that adoption of environmental, social, and governance (ESG) exchange traded funds is soaring. In fact, assets under management at these products seemingly hit all-time highs on a monthly basis.
However, there’s a hurdle to broader ESG adoption. Fortunately, it’s easy to fix. Put simply, many retail investors are interested in ESG allocations, but they need and want more education and information.
A recent survey of 1,228 investors by the FINRA Investor Education Foundation and NORC of the University of Chicago confirms as much. For fund issuers, the good news is that retail investors are keeping open minds about ESG.
“More than half (57 percent) of respondents strongly or somewhat agree that investing can be a way to make positive change in the world, and over three-quarters (77 percent) of respondents indicate that, if they had the opportunity to invest in a ‘socially responsible’ mutual fund, they would assume that companies held by that fund would align at least somewhat with their personal values. Only about a third (37 percent) agree or strongly agree that a company’s role should be to maximize earnings and not pursue social or environmental goals,” according to the survey.
Those data points are encouraging for sponsors of ESG ETFs. However, the FINRA survey also indicates that retail investors need plenty of help when it comes to properly understanding this investment concept.
“Although media coverage of ESG investing has substantially increased in recent years, only 28 percent of investors report being at all familiar with ESG investing,” notes FINRA. “Only 24 percent of study participants can correctly define ESG investing, and only 21 percent know what the letters in ESG stand for; a quarter of the sample incorrectly believe ESG stands for ‘Earnings, Stock, Growth.’”
To that end, simple ESG strategies could prove most effective in terms of bringing new investors to this asset class. On the ETF front, straightforward ESG strategies include the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND), the SPDR S&P ESG ETF (EFIV), and the SPDR SSGA Gender Diversity Index ETF (SHE), among others.
Advisors and fund issuers also need to consider some important demographic trends regarding ESG funds.
“Investors under age 30 (17 percent, compared to 8 percent among all others), those with annual incomes under $30,000 (15 percent, compared to 8 percent among all others), and non-white investors (12 percent compared to 8 percent) report holding ESG investments most frequently,” according to the survey.
For more news, information, and strategy, visit the ESG Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.