A recent posting by Jessica Ground—Global Head of ESG at the Capital Group—on the Harvard Law School Forum on Corporate Governance shows that investors are slowly increasing their efforts to support companies that have Environmental, Social, and Governance (ESG) characteristics. However, a separate posting on the forum’s website by Prof. Lawrence Cunningham—Georgetown University School of Law—draws attention to a sharp distinction between institutional investors’ appetite for ESG-related investing and that of individual or “retail” investors.
In her June 17 post on the forum, Ground said that about a quarter of investors continue, as in 2021, to describe ESG as “central to their investment approach (26% in 2022 vs. 28% in 2021).”
Cunningham, posting on the forum on June 23, said, “It is well-known that institutional investors vote for environmental shareholder proposals at about twice the rate of individual investors.”
According to Ground, investor stances have shifted this year to one of “acceptance” (34% vs. 32% in 2021) and “compliance” (29% vs. 24% in 2021).
Cunningham cited a Gallup Poll of 953 U.S. adult individual investors that found most “prioritized the expected rate of return and risk for potential losses over environmental and other issues.”
Ground added that the percentage of global ESG investors rose to 89%—up from 84% in 2021.
Cunningham stated on the other hand that “less than 2% of mutual fund money is invested in ESG funds.”
According to Ground, only 13% of global investors say ESG is a temporary “fad.”
Meanwhile, Cunningham cited a survey of 1,228 retail investors conducted by NORC at the University of Chicago and the FINRA Investor Education Foundation in which “individual investors identified environmental aspects of a potential investment as the least important consideration compared to financial, governance, and social factors.”
Challenges in ESG investing include inadequate standardization of information and difficulties getting high-quality data.