According to a recent study from Betterment, an online investing company, investors are expressing considerable interest in ESG investing, but there’s a catch: Many are not familiar with what investing in ESG actually means.
The newly released study showed that many investors are still in the dark about what this much talked-about investing strategy entails. In a survey of 1,000 investors, Betterment revealed that about 35% said they were not interested in seeking out ESG investments, but over half of those (51%) said they had not sought it out because they didn’t understand it.
The Betterment survey also found
- 54% of investors felt unfamiliar with the ESG concept in certain ways
- 26% of the investors do hold an ESG investment
- 46% of investors who haven’t sought out ESG investments are interested in doing so
ESG stands for environmental, social, and governance, and prioritizes socially responsible investing. The category essentially provides a level of accountability for the social responsibility of companies. The United Nations, in partnership with a collection of financial institutions, published a 2005 report stating that companies that are more responsible will also be more financially profitable.
The Betterment study makes the case that more education can enhance the attractiveness of the investing strategy.
As Fast Company has reported, ESGs can be confusing to individuals who are just hearing about it. Some CEOs, like Tesla’s Elon Musk, have even publicly disparaged ESGs, calling them a scam. Oil giant Exxon and tobacco company Philip Morris are both listed in ESG funds. The reality of ESG investing can get even more confusing due to a breadth of ESG rating systems.
Still, sustainable investing has only grown in popularity and attracted increasingly more attention in recent years—driven in part by climate emergencies and the current public health crisis.