Younger investors are more willing to put money behind environmental and social goals, even if it’s costlier

The world’s largest asset managers are active in environmental, social and governance (ESG) investing, and leading companies such as BlackRock, Vanguard and State Street are using voting proxies to influence board members. We declare our intention to drive everything from diversity. Towards net-zero carbon emissions.

But is that what retail investors really want? perhaps. maybe not.

That’s a mixed message from a new survey of investors published by the Stanford Graduate School of Business, the Rock Center for Corporate Governance, and the Hoover Institution.

The survey of 2,470 investors with savings of less than $10,000 to $500,000 or more found that younger shareholders are more enthusiastic about having their fund managers pursue ESG objectives and are more likely to take risks. They also stated that they were much more proactive about harming themselves, revealing a big difference between generations. More loss in the process.

Overall, 83% of all respondents said they believe mutual fund managers should consider their personal views when using stocks to vote on environmental or social issues. Their views diverged from there.

Nearly two-thirds of millennial and Gen Z investors say they are very concerned about environmental and social issues such as carbon emissions and income inequality, compared to investors aged 58 and over. About two-thirds said they had little or no concern. Also, the average investor in their 20s or 30s is willing to lose 6% to 10% of his investment to see the company improve its environmental efforts, whereas the average Baby Boomers didn’t want to lose anything.

David Larker, Stanford GSB Emeritus Professor of Accounting and Hoover Institution Fellow, collaborated with GSB Professors Amit Sell and John Kepler, Hoover Institution and Stanford Graduate School of Humanities Stephen Haber, and GSB Academic Brian Tayang. I wrote this study in , MBA ’03. Here, Larcker discusses their findings and what they mean for the fund and his manager.

Why survey individual investors in large funds about their personal attitudes towards ESG investing?

The overall push for ESG has been impressive, with significant funding inflows and lots of discussion around climate, diversity, and all those important things. But the debate about what we should do going forward is complicated. Because there are many hidden assumptions in what people are claiming.

One assumption is that there will be market pressure to meet stakeholder ESG objectives and preferences. It makes sense, but where’s the evidence that it’s really true and has a real impact on how companies behave?

Also, while these are social issues, not everyone has the same perspective on ESG topics. All the big mutual funds have made statements about wanting companies to embrace things like diversity and net zero. But what do shareholders really want mutual funds to do when it comes to voting and pressuring companies on ESG issues?

Once ESG proposals are submitted, fund managers have a fiduciary responsibility to vote for or against them. We’re taking a step back and asking, “Are you voting in a way that is consistent with what your shareholders want? Do you actually know anything about it?”

In general, the investors you surveyed were most willing to incur losses in pursuit of their environmental goals, and least in the name of good governance.

Environmental and social issues are much more understandable and personal to people. is your water bad? Are there too many people in your community living below the poverty line? It is a well-understood and first-hand problem. It’s a little more abstract.

Most investors also agreed that fund managers should take investor opinions into account when voting on environmental and social issues. However, their willingness to vote and push for progress on these issues, and their willingness to lose money as a result, depended on their age.

People my age tend to say, ‘We want you to be heard, but it’s our opinion that you don’t want to lose money in your account to meet your ESG goals’. Young people, on the other hand, seem to be willing to give up investments in things they consider socially or environmentally good.

What we are trying to understand is, if these investments are not positive for shareholder value, what are the tradeoffs? For example, how much are shareholders willing to give up to address wealth inequality? Do you think? This is what these funds do when they make voting decisions or when they meet with management and say, ‘Here’s what’s really important on the list and here’s why’ It will be useful information when

What causes the division between younger and older investors?

Older people have a shorter timeline. If a fund loses a lot of money because it has moved heavily to his ESG, there isn’t much time to make up for it. If you have 30 to 40 years to do so, it won’t be too painful.

But something else is also happening. Seniors believe returns will be much lower over the next few years. They also believe they have a fairly poor understanding of how market prices behave. Younger generations, on the other hand, are much more optimistic about returns and are very confident in their knowledge.

Now, if you think prices are going up 10% or 15% each year, you might be willing to give up some of your nest eggs because they still grow and get pretty big. If you think your growth will be much lower (as older folks see it), your internal calculations will be different.

How should fund managers deal with such major differences of opinion?

It might be a smart move to research what investors want. Especially when it comes to issues where really tilting your investment strategy towards his ESG is pretty likely to result in losses. They are your customers and you have a fiduciary responsibility to them, so take their preferences into consideration. Let’s say an ESG proposal is being voted on at an annual meeting. You vote for your people and 60% like it and 40% dislike it.