In news that may be surprising to experienced investors and registered investment advisors, a significant percentage of market participants still don’t know what environmental, social, and governance (ESG) is, indicating that more education is needed to drive broader adoption of these types of investment products, including exchange traded funds.
Increased advisor proficiency in ESG and more investors becoming knowledgeable of its investing objectives could propel broader usage of ETFs such as the Invesco ESG Nasdaq 100 ETF (QQMG) within portfolios. QQMG, which follows the Nasdaq-100 ESG Index, debuted nearly two years ago and data indicate there’s ample room for growth for funds of this nature.
In the third annual “Global ESG Monitor” survey, Global Strategy Group and SEC Newgate report that a whopping 78% of Americans still haven’t heard of ESG or they don’t know what it means. Conversely, a majority of those polled say they implement these considerations in their investment evaluation processes. Both points could be indications that more education could a long way toward boosting environmental, social, and governance ETF assets under management.
Demographics Matter
The Global Strategy Group and SEC Newgate report unveiled some arguably surprising points regarding who is and who isn’t familiar with ESG investing. Currently, the demographic news is mixed for ETF issuers, but as more market participants leave the unfamiliar camp, products such as QQMG could benefit.
“Only 22% of respondents say they have a good understanding of what ESG is. This is up from 15% in 2022. The groups who are more likely to have heard of ESG are men (65%), Millennials (68%), college[1]educated Americans (69%), and Republicans (61%). We see increased awareness of the term, particularly among ultra-conservatives,” according to the survey.
Younger investors, particularly millennials and Gen Z, could drive long-term adoption of environmental, social, and governance funds. That could prove advantageous for ETFs like QQMG because the Invesco fund is home to a slew of stocks with which younger market participants are already familiar. In many cases, if those investors don’t own shares of those companies, they’re likely using those firms’ products and services.
“There are some differences between generations, with Millennials factoring ESG into their decision[1]making the most overall. They are the most likely to consider ESG when making employment decisions (58% for both remaining employed and considering a new employer) or making investments (57%). Similarly, Gen Z and those who have higher levels of education (university/bachelor degree and above), were also more likely to consider ESG when making investments (55%; 59% respectively),” concluded Global Strategy Group and SEC Newgate.
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