Environmental, social, and governance (ESG) investing is a hot trend in the property industry, one that grabs headlines, but a new survey shows many retail investors are unfamiliar with it and have difficulty explaining what it means. One in four investors couldn’t identify what the ESG acronym stands for, believing it meant things such as “Earnings, Stocks, and Growth,” according to a new survey by the FINRA Investor Education Foundation and the University of Chicago.
FINRA and the University of Chicago surveyed 1,228 retail investors and found that only 24 percent could correctly define ESG investing, and only 21 percent knew what the letters in ESG meant. “Retail investors do not understand ESG investing, only 9 percent say they have ESG-related investments, and familiarity with the concept is not as comprehensive as some coverage on the topic of ESG investing might suggest,” said Gerry Walsh, president of the FINRA Investor Education Foundation. Walsh said the survey findings were “both surprising and worrying.”
Survey respondents said financial factors were the most important considerations when making investment decisions, such as whether an investment has the potential to yield high returns and the amount of risk involved. Environmental factors were ranked as the least important consideration. A majority (41 percent) of investors said returns for companies that prioritize impact on the environment and society would be similar to those of the broader market.
While the general lack of understanding of ESG may be surprising, the survey results may not be all that shocking for many who have worked around sustainable investing. Recently, more people have spoken out about greenwashing in ESG, sometimes quite vehemently. For example, Tariq Fancy spent two years running sustainable investing at BlackRock, the world’s largest money manager, recently wrote a three-part essay denouncing ESG. “It’s clear to me now,” Fancy wrote, that my work with sustainable investing “only made matters worse by leading the world into a dangerous mirage, an oasis in the desert burning valuable time.”
Despite criticisms, ESG investing continues to grow and break records. Sustainable financial assets are expected to increase to $50 trillion by 2025 from about $35 trillion, according to BloombergIntelligence. Much of this money will flow into sustainable buildings and property companies. But do to the misconceptions around the catch-all term ESG, what it means to be sustainable is not yet clearly determined.