Students take part in the Global Climate Strike march in New York.
Johannes Eisele | AFP | Getty Images
As the bull market flourished in 2021, many investors became interested in investments that reflected their values.
Environmental, social and corporate governance – or ESG – investments have attracted record levels of new assets. Last year, US sustainable funds attracted nearly $70 billion in 2021, a 35% increase from the previous high in 2020, according to Morningstar.
Yet despite record growth, ESG funds have yet to achieve mass adoption, according to new research from Betterment. To find out who does and does not invest in ESG and why, the company recently commissioned an online survey of 1,000 investors who hold taxable investments.
Who likes ESG investing and who doesn’t?
More than a quarter of respondents – 26% – said they currently hold some sort of ESG-themed investment. Of these respondents, 59% have held these investments for more than a year.
Notably, the survey also revealed that 80% of investors who hold ESG-themed investments also have money in cryptocurrencies.
ESG investors are more likely to belong to younger generations, with 54% of Gen Z and Millennials holding these investments. That compares to 42% of Baby Boomers and 25% of Gen Xers.
Many respondents (46%) said they had not researched ESG investing, but were interested in it.
Meanwhile, a majority of those who weren’t interested – 51% – said they didn’t feel like they understood ESG investing well. Another 27% fear that their returns will suffer if they invest in this area.
ESG versus crypto — a conflict of values?
Most survey respondents do not own crypto, 63%, compared to 37% who said they do.
Meanwhile, 80% of those who hold ESG-themed investments also hold crypto investments. By comparison, only 22% of those without ESG-themed investments in their portfolio hold crypto.
Yet, as more cryptocurrencies are adopted, it has led some to raise red flags about the power consumption of their mining activity. According to Betterment’s report, it has been estimated that bitcoin mining alone consumes more electricity than many countries. Since electricity is connected to fossil fuels, the energy used to mine crypto can potentially increase greenhouse gas emissions.
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The survey found that 96% of ESG investors who also invest in crypto are aware of these environmental concerns, while only half of non-ESG investors said the same.
Additionally, 76% of respondents said it was either very important or important that major cryptocurrencies become more environmentally friendly.
“The industry itself is moving in a sustainable direction, in part because of all the scrutiny and investor sentiment around it,” said Raoul Bhavnani, communications director at Betterment, citing the recent passage. from Ethereum to a less energy-intensive method of generating new coins.
Will market concerns hurt ESG enthusiasm?
As markets fall, how investors perceive ESG funds as helping them achieve their goals can be a determining factor in whether they can sustain their recent growth.
When Betterment asked the extent to which survey respondents would be willing to sacrifice performance to achieve their ESG goals, 17% said they were very willing, 16% said they were willing, and 25% said they were quite willing.
Meanwhile, 26% said they weren’t very willing and 16% said they weren’t at all willing.
The top hesitations cited by investors about investing in ESG-based portfolios included whether it would reduce their returns, with 53%, followed by the impact the investment would have, 40%, or s would have higher fees than other funds, 39%.
Furthermore, a recent Morning Consult survey revealed that Americans are generally divided on ESG and profitability. While 40% of investors surveyed said they value profitability over social responsibility, 37% of respondents said the opposite.