In light of recent events, many of us are seeing old behaviours in a new light – and that includes investing. We look at the rise of socially responsible investing and identify which issues investors care about most.
A lot has been made of the coronavirus and its economic impact. But what of its impact on purchasing decisions? And will the issue of social responsibility play more into our decision-making, with the malpractice of certain businesses, and the social implications, having received so much media attention?
Social responsibility in a new light
Our own study1shows that even before the coronavirus emerged, social responsibility was a big factor in many people’s investment decisions. One in three investors told us they were ‘very likely’ to change their portfolio – even one providing returns – after finding they were invested in companies with a poor track record on social issues.
We also found that investors were more likely not to invest than to invest in a company generating high returns were they to find it was socially irresponsible. From health and safety to supply chain management, these issues clearly matter to investors. Arguably now more so than ever.
It’s little surprise then that socially responsible investing (SRI) is proving an increasingly attractive option.
Socially responsible investing goes mainstream
Socially Responsible Investing (SRI) has grown in both popularity and scope in recent years– for example, in 2018 a survey by the UK Sustainable Investment and Finance Association found that 53% of investors were ‘more interested’ in strategies to reduce exposure to companies involved in fossil fuel extraction, while 27% were ‘significantly more interested’2 than the year before.
In theory, the premise behind socially responsible investing is simple – invest in line with your values and beliefs. However, there are a lot of different labels – ethical, impact, green, sustainable, to name but a few.
To discover people’s attitudes to SRI, as well as what might be stopping them from choosing this type of investment, we surveyed investors and found out how they see themselves in relation to environmental, social and governance issues, and what the main causes they care about are.
Causes that concern
Most people have favourite charities they donate to regularly, and causes they care about deeply. According to Nutmeg’s survey, 95% of people are aware of the headline environmental, social and governance (ESG) issues that affect us and the world around us. Those at the top of our respondents’ agendas were climate change, human rights and animal welfare.
Those surveyed were least concerned about executive compensation – the pay that business leaders receive from their companies – with only 4% of women choosing this option, and 12% of men. On the other hand, more women care about employees’ working conditions than men, at 40% versus 32%.
Our research highlights investors’ stances towards their own money and investments.
Affluence is a clear priority for a large portion of the respondents, as nearly half of our interviewees rated being wealthy as important or very important to them. This could be why there has historically been less uptake in socially responsible investing as the findings show that a quarter of the respondents fear low returns from investing in socially responsible portfolios. Despite this fear, 14% said they didn’t understand what SRI means, which could allude to a lack of understanding around the product and what it offers.
James McManus, chief investment officer at Nutmeg said: “There’s a perception that investing in SRI portfolios will negatively impact your returns. But our research shows no meaningful differences in the long-term between the performance of portfolios that incorporate an SRI focus, and those that don’t. In fact, our own SRI portfolios outperformed the industry benchmark at every level of risk in their first year.”
Despite myths like this, our study shows attitudes towards SRI are becoming increasingly positive; nearly a third of the investors we surveyed said they wouldn’t continue to invest in a company that didn’t behave in a socially responsible way. Meanwhile, nearly half (44%) said they were unsure of what they would do. Only a quarter of investors said they would continue to invest.
Which would you choose?
Investors’ attitudes towards the purpose of investing is also changing. Almost half of the respondents agreed with the statement: “By investing my money, I support the causes those businesses stand for. The more I support businesses that are not socially responsible, the more they will grow.”
This shows investors are viewing responsible investment as a way to support the businesses and causes they stand for, in the hope that they will thrive and grow, and go on to do even better. However, they also recognise that if they were to choose not to invest in SRI portfolios, businesses with poor practices will proliferate.
In contrast, only 36% of people prioritised high returns over social responsibility, agreeing that: “The primary goal of investing is to make money, regardless of whether it’s ethical or not. Once I have money, I will invest in causes I care about.”
The more you know
Nutmeg scores all of its portfolios against a range of environmental, social and governance factors, such as climate change and renewable energy, privacy and data, and tax transparency – whether they have an SRI focus or not. This means you can see the impact your investments are having, whether you own an SRI portfolio or not.
We use thousands of data points provided by world-leading investment data analysts MSCI to create an accurate picture of what you’re investing in.
According to our recent research, social concerns – such as working conditions and human rights abuses – were rated as the most important, as over half of investors (54%) said they would “likely” change their portfolio if they found it didn’t support positive behaviour in these areas.
Next in importance was environmental issues, with 39% of investors saying they’d “likely” change their portfolio if their investments were bad for the environment, for example, funding businesses with heavy carbon emissions, or creating pollution and waste.
Finally, over a third (35%) said they’d choose another portfolio if they discovered their existing one invested in areas such as governance concerns, like business ethics and tax transparency.
Commenting on the findings, James McManus, said: “This research shows that socially responsible investing means something different to everyone. Traditionally there has been a focus on minimising exposure to fossil fuels and environmental issues – which likely influenced the proliferation of labels like ‘green investments’. However, social concerns – such as working conditions and human rights abuses – are now more likely to strike a chord with investors and drive a change in behaviour. Only by knowing exactly what’s in your investments and how they score on a variety of issues will you know if they align with what’s important for you.”
At Nutmeg, we’re keen to make investing responsibly as easy and transparent as possible. Our straightforward scoring system, powered by data provided by MSCI, gives both SRI and non-SRI investors the best possible sense of how each portfolio aligns with your values, and whether it’s the right investment choice for you. This is especially important for long-term investments like pensions and Junior ISAs, that have the best chance of potential growth as they are typically invested over a long period of time.
Ultimately, how you choose to invest your money is up to you – we’re here to empower your decision making. But if social responsibility is important to you, we can help you support the causes that you care about the most.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. Tax treatment depends on your individual circumstances and may be subject to change in the future.
 These results are based on OnePoll survey conducted on behalf of Nutmeg between 28th October- 4th November 2019 targeting 1,000 UK adults who invest.