Young investors willing to take ‘very large’ losses for ESG, Stanford survey finds

Academics say it could have implications for proxy voting process at institutional managers.

Attitudes regarding sustainable investing vary wildly across age groups, according to a survey of 2,470 investors across the US by Stanford University.

Researchers found that one-third of investors below 41 years of age claim to be willing to lose more than 10 percent of their retirement savings to bring about social and environmental improvements to company practices.

The age group, comprising millennial and Gen Z investors, expressed high concern for social issues such as diversity, income inequality and labour conditions, as well as environmental considerations including carbon emissions reduction, renewables and product sustainability. Governance factors ranked least in importance for younger investors.

Researchers noted that the wealthiest younger investors expressed the most support for ESG, while support waned among those with less savings.

In contrast, baby boomer investors – ages 58 and older – overwhelmingly opposed the idea of forfeiting large portions of their retirement savings to bring about environmental or social change. The average older investor is unwilling to lose any savings for environmental improvements, and claimed low levels of support for social activism.

The attitudes carried over to stewardship, with around 80 percent of younger investors backing investment companies in using their size and voting power to influence the environmental and social practices of portfolio companies. Only 42 percent of older investors said it was important that fund managers influence the environmental practices of companies, while 35 percent said the same for social practices.

Market optimism

The contrasting findings may be driven by optimistic expectations for future stock market growth among young investors, the researchers noted. Millennial and Gen Z investors expect a 16.8 percent return annually over the coming decade, compared to the 10.7 percent return estimated by older investors.

One of the study’s authors, Amit Seru, a Stanford Graduate School of Business academic and co-director of the Hoover Institution Working Group on Corporate Governance, said: “Investors under 40 want to see companies make progress across a broad range of environmental and social initiatives and claim to be willing to suffer personal financial loss – sometimes a very large loss – to see those changes realised.

“The many years they have until retirement and high expectations for future stock market growth might encourage them that any cost due to ESG activism can be recovered.”

Stanford’s Stephen Haber, another co-author and co-director of the Hoover working group, suggested that fund managers may want to consider “polling their investor base on how to vote and split votes to reflect the divergent views of various groups” in response to the findings.

It comes as BlackRock announced plans to allow smaller investors to indicate their voting preferences on ESG issues for the first time, after facing long-time criticisms over the ambition of its stewardship efforts.

While the Stanford study is US-focused, market participants said it could give some insight into the potential impact of new EU requirements, which will see investment advisers take into account the sustainability preferences of their clients when making product recommendations under MiFID II.

The new regime has been one of the least studied areas of the EU’s sustainable finance programme – less scrutinised than the green taxonomy, SFDR and corporate disclosure requirements, and climate benchmarks.

The Stanford survey follows and reinforces the findings of a landmark study conducted by the University of Cambridge in 2019, which found that the median US saver would prefer a sustainable fund even if they had to sacrifice 2.5 percent of overall returns.

Nina Seega, who worked on the Cambridge study, told Responsible Investor that she expected MiFID II to impact the proportion of ESG products selected by investors.

“Since we released our study, the market has become even more engaged on sustainability issues and therefore I think the conclusions will still hold and potentially may be amplified. In addition, European consumers tend to be more aware of sustainability considerations compared to the US market and hence I think the conclusions equally apply.”