Survey: Just 23% of Investors Align Most Investments to Their Values

Socially responsible investing is gaining in popularity, but there’s a pronounced gap between those who value it and those who actually invest this way. According to a new NerdWallet survey, while more than two-thirds of investors (69%) say it’s important to them to invest in a socially responsible way, fewer than 1 in 4 investors (23%) say most or all of the money they currently have in investments is invested in accordance with their values.

The NerdWallet survey of more than 2,000 U.S. adults — including 1,608 who currently have investments — conducted online by The Harris Poll asked investors about their thoughts on socially responsible investing, including whether they invest this way and how much of their portfolio aligns with their value systems. We also asked about what’s holding some investors back from participating in socially responsible investing.

Key findings

• The environment is a top concern when it comes to socially responsible investing: Of investors who say it’s important to invest in a socially responsible way, 45% say it’s most important to them to choose investments that focus on environmental impacts.

• A gap between desire and understanding may be keeping some from investing in a socially responsible way: More than two-thirds of investors (68%) say they aren’t sure about the best way to invest according to their values, which could explain the disconnect between those who say this type of investing is important and those who actually hold socially responsible investments.

• Perceived lower returns are a major concern with socially responsible investing: Of those investors who say it’s not important that they invest in a socially responsible way, the top reason why is that they want their investments to have the highest returns, regardless of if they are socially responsible (41%).

• Investors are skeptical about the impact of socially responsible investing: More than three-quarters of investors (77%) believe many companies that promise to operate in socially responsible ways don’t actually follow through. Close to the same proportion (73%) think it’s difficult to figure out whether socially responsible investing actually benefits society.

“There are many reasons why an investor interested in socially responsible investing would let their values slide when it comes to their portfolio,” says Alana Benson, a NerdWallet authority on investing. “It can require time-consuming research, and it's hard to measure your individual impact and choose investments. But investors should know that there are more options than ever, including robo-advisors that offer socially responsible portfolios.”

A majority of investors value socially responsible investing

Environmental, social and governance (ESG) investing is a form of sustainable investing that measures investments based on those three categories. Environmental factors include carbon emissions and green energy initiatives; social factors may look at labor practices and employee diversity; and governance includes corporate executive pay and political contributions, among other things.

Most investors (69%) say it’s important to them to invest in a socially responsible way. Of that group, close to half (45%) say it’s most important to them to choose investments that focus on environmental impacts, while 29% prioritize social impacts and 14% governance impacts.

What you can do: Decide what socially responsible investing means to you

Not everyone defines socially responsible investing the same way, so if you’re interested in investing according to your values, you first need to determine what that means to you. Consider what you want to actively invest in — like companies that have fair labor practices or specific green energy initiatives — and what you want to avoid, such as companies that contribute to deforestation or lack diverse representation on their boards.

Most investors don’t have the bulk of their money invested according to their values

Despite the high percentage of investors who say investing in a socially responsible way is important to them, less than a quarter of investors (23%) say most or all of their money is invested in accordance with their values.

Part of the disconnect between those who think socially responsible investing is important and those who actually invest their money this way may be a lack of knowledge about how to find these investments. According to the survey, 68% of investors say they don’t know the best way to invest according to their values, and 53% of investors say it’s difficult to find investments that align with their values.

Many Americans invest using a workplace retirement plan, like a 401(k) or 403(b), which often have limited investment options. According to the survey, 17% of employed Americans say their workplace retirement account doesn’t have socially responsible options, and another 27% aren’t sure if it does. Conversely, some Americans who think their workplace retirement plans have sustainable options may be mistaken. The Plan Sponsor Council of America’s 2018 annual survey found that just 2.9% of 401(k) plans have a socially responsible fund option.

The U.S. Department of Labor has recently proposed a rule that would remove barriers in place for a fiduciary to consider ESG criteria when choosing workplace retirement plan investment options, which could mean more socially responsible options in the future.

What you can do: Learn how to get started

Once you know what you would like to invest in and divest from, you can start investing in individual companies or funds, like mutual funds or exchange-traded funds, that align with your values. If you want to invest in individual stocks, you can start by looking for a sustainability report or seeking out information about the diversity of a company’s workforce or board of directors.

Equity mutual funds or ETFs are composed of the stocks of many different companies. This option diversifies your portfolio but can also make it challenging to determine if all of these companies adhere to practices that more or less align with the way you define social responsibility. Choosing an ESG fund can be a good place to start, as you can specifically select a fund that aligns with your values and goals.

For your workplace retirement plan, if it doesn’t have socially responsible investment choices, your employer may allow you to invest part or all of the money outside of the standard options by using a self-directed 401(k).

A self-directed 401(k) can open up investment options if you wish to be more hands-on, and could allow you to invest in a socially responsible way whether or not your workplace retirement plan typically offers these funds. This option may be best for experienced investors or those with professional help, like a financial advisor.

Not all investors are confident that socially responsible investing is effective

Of the nearly one-third of investors (31%) who say it isn’t important to them to invest in a socially responsible way, the top reason why is because they want their investments to have the highest returns regardless of whether or not they’re socially responsible (41%).

A common perception about socially responsible investments is that they don’t perform as well as traditional investments. According to the survey, half of investors (50%) agree that socially responsible investments have lower returns than investments that don’t prioritize social responsibility, which may keep some investors who would otherwise engage in socially responsible investing from putting their money where their values are. But the facts don’t necessarily support this perception.

“There is a lot of evidence to suggest that ESG investments can not only have similar performance to their traditional peers, but they can sometimes outperform them,” Benson says.

Pay extra attention to the expense ratios — or the annual fees — of your mutual fund or ETF investments, as sometimes socially responsible funds can carry slightly higher costs than traditional investments.

Many investors are skeptical about socially responsible investments as a cure for what ails us. Close to three-quarters of investors (73%) agree that it’s difficult to figure out whether socially responsible investing actually benefits society. And 77% of investors believe many companies that promise to operate in socially responsible ways don’t actually follow through on those promises.

What you can do: Research the impact of your investments

A healthy dose of skepticism around socially responsible investing is a good thing, particularly due to the practice of greenwashing, or the misrepresentation of an investment or company to make it seem more sustainable than it actually is. As socially responsible investing becomes more popular, some companies appear to have no qualms about representing themselves as sustainable when they’re anything but.

“It’s very difficult to know what your investment’s direct impact is, but many socially responsible investments offer impact reports,” Benson says. “These documents can tell you about a fund or company’s socially responsible or sustainable practices, whether that’s reducing carbon output or hiring more diverse board members.”

You can also enlist the help of a financial advisor in choosing investments that actually make a difference that aligns with your values. Depending on your preferences and budget, you may choose to hire a human financial advisor to tailor your investments or use a robo-advisor that offers socially responsible portfolios.

Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Dec. 13-15, 2021, among 2,051 U.S. adults ages 18 and older, among whom 1,608 are investors. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Chloe Wallach at [email protected].

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