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Financial Planning > Charitable Giving > SRI Impact Investing

Education Will Unleash Interest in Social Investing: BNY's Newton

By Ginger Szala

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There is an untapped demand for socially responsible investing, and investment advisors and other asset managers would do well to not only educate themselves on SRI, but do the “the heavy lifting” and help clients — especially millennials — to understand and guide them through the process, according to a new study by BNY Mellon Investment Management’s Newton Investment Management.

“The study makes a strong case for the importance of asset managers with expertise in the space helping connect the dots for investors between social interests and investment outcomes they’re looking for,” said Julian Lyne, chief commercial officer of Newton Investment Management.

The study of 1,023 investors 18 and older with at least $40,000 in investable assets examined attitudes and behaviors toward social investment, drivers of investor interest, and reasons that investors choose not to use SRI strategies.

One of the surprising findings of the study was the demographic differences between investors who use SRI and those who do not, Lyne told ThinkAdvisor. Age, rather than gender, was the key differential. Of those under 39, almost 70% were interested in ESG investing, a number that drops to 21% among investors over 50.

Another divergence was savings: 49% of households with savings between $500,000 and $1.5 million showed interest in SRI compared with just 38% of households with savings of less than $499,000.

Some other findings:

  • What drove investment in ESG was “an awareness of investment options.” The study found that 45% of the U.S. investors “are likely to know what social investing is.” Sixty-six percent of overall respondents said that were at least “moderately interested” in SRI, and 20% stated they were “extremely interested.”

The takeaway, Lyne said, was that advisors and fund managers needed to “facilitate the conversation with end users … and define SRI. With education we’ll see change of interest.”

Of those who didn’t know what SRI was, only 6% were extremely interested in it. Whereas of those who did know SRI, 35% said they were extremely interested.

  • The study also looked at groups divided by interest level, noting that “a one-size-fits-all approach” won’t work given the different motivations by investors [labeled optimizers, altruists and motivated pragmatists]. Some will trade off liquidity for SRI, others will trade off return or risk for “social outcomes,” and then there are those who won’t do either, who typically were newly retired investors who were settled in their ways, the study found.

Of those who have never invested in SRI, 29% were not likely to  lock up a portion of their wealth for long periods in socially responsible strategies. However, the same percentage said they would take a greater financial risk with social investment than with a traditional investment, and 30% of those who haven’t invested said they would accept lower return with SRI.

  • Investors don’t generally perceive differences between “types” of social investing — and some just aren’t interested. “Time spent on these subtleties may be wasted,” according to the study. The problem was a blurring of lines between ESG, ethical and sustainable focused investing.

“Education affects both investors and advisors,” the study states. “Because social investment is an area that requires specialist knowledge, both investors and advisors could be less likely to raise the topic where that knowledge is lacking. Where advisor knowledge is lacking, burgeoning investor interest could be cut off.”

Getting Into the Dirt

  • “Tailored messaging should focus on ‘expressing values like transparency and evidence of impact.’”

When it comes to evidence, “people do not distinguish much between types of evidence; they tend to take satisfaction from all evidence or none.” In fact, the study notes that the need for evidence in impact investing “is a symptom, not a cause, of lack of investment.”

The study found 78% of those who didn’t invest in SRI said they would need quantitative evidence to convince them to invest. Also, 75% said they needed real-life examples, and 73% stated they would only consider a socially responsible investment if the social good could be measured. Some 70% noted they would require verification by an independent third party to convince them to invest. Of course, these also could be reasons why someone might not invest in other types of strategies.

One conclusion was that “for a specialist area like social investment, where knowledge is low, perceived barriers are high, and there is a lack of clarity about the aims of different approaches, these factors are arguably especially important. There is less benefit in prioritizing specific causes in messaging, and more in focusing on values with which the investor wants to be aligned, such as transparency, certainty and universality. These values forge a clear link between investment and impact, and provide evidence that yes, you can make a difference.”

— Related on ThinkAdvisor:

Ginger Szala

@gingerszalaink

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