Retail investors eye ESG factors, survey finds

ESG-related considerations are important to retail investors, with individuals tending to place slightly greater store in social issues above governance and environmental matters, according to research by Allianz Life Insurance Company of North America. But a lack of comparable disclosures may be hampering actual investment patterns.

Much of the attention on the growing influence of ESG issues in recent times has focused on companies’ reporting and engagement with institutional investors. The Allianz Life survey indicates that these topics are also important to so-called mom-and-pop investors, particularly in their attraction to companies that can tell a positive story about their ESG track record.

Respondents were asked to rate the importance of a range of factors when deciding whether to invest in a company. The two highest-rated issues both fall under the ‘social’ section of the ESG umbrella, with 84 percent of respondents pointing to ‘the impact of [the company’s] product/service on people’s health or well-being’ and 84 percent pointing to ‘workplace safety/working conditions of employees.’

The next two highest-rated factors are both governance-related. ‘Transparency in business practices and finances’ is cited by 81 percent of respondents, while ‘wages provided to their employees’ is important to 80 percent of those taking part.

The top two highest-rated environmental issues are ‘natural resource conservation (such as water conservation, species conservation)’ at 76 percent and ‘[the company’s] carbon footprint/impact on climate change’ (69 percent).

Allianz Life polled 1,000 respondents aged 18 years or older in December 2018.

The focus on social issues mirrors what many companies and institutional investors have been reporting over the past couple of years. But the high ‘importance’ scores of a variety of factors across the ESG spectrum show that social issues are not the only elements receiving attention. 

Another similarity between the retail and institutional level may be the challenges facing issuers and investors around ESG-related disclosure. These can include the sheer volume of potential data, the role of intangible factors and the lack of commonly accepted standards.

‘These issues are important [to investors] but in a more sporadic way; for example, based on what’s in the news,’ Kelly LaVigne, vice president of consumer insights at Allianz Life, tells Corporate Secretary. ‘Investors say it’s hard to get information on companies that’s important to them.’

It is difficult to find data by which to compare companies and, as a result, retail investors may therefore not invest, LaVigne notes. This can also explain why there appears to be a gap between what people say is important and how they invest in reality, he adds.

Despite this gap, retail investors tend to reward companies for good behavior rather than punish them where they have concerns, according to the survey.

Among 16 ESG issues highlighted in the research, 11 are more influential in investors’ decision to invest – such as carbon footprint/impact on climate change, charitable contributions, involvement in reducing poverty and wages provided to employees – and only two issues are more influential in causing people to stop investing: animal testing and donations to political candidates/political action committees.

‘Although many people remain skeptical about actual returns from ESG-focused investments and are confused about what qualifies as an ESG investment, investors still see value in supporting businesses with strong ESG practices,’ LaVigne says in a statement on the report.

‘As information about the way companies operate becomes more readily available to average investors, we anticipate an even stronger focus on ESG performance. Greater awareness and education on ESG topics will help bridge any existing information gaps on the true importance of ESG.’