July 3, 2020
The most recent research around investor attitudes towards responsible investing suggests that responsible investors want values alignment, risk management, climate impact and good old-fashioned investment performance. They want to have it all. For advisors, there’s power in telling them that, with RI, that they can.
In the minds of many investors and advisors, responsible investing has been an ‘either-or’ proposition: you either invested in alignment with your values but sacrificed performance, or you maximized investment growth while giving up on feeling good about the “how.”
It’s time to think again. In recent research from Nuveen1, a US-based asset manager, responsible investors are making it very clear they want it all. For the first time in the five years Nuveen has been surveying investors around their attitudes towards responsible investing (RI), the majority – 53% – cited better performance as the top reason they would invest responsibly. This means responsible investors are confirming the importance of performance while also affirming their confidence that responsible approaches will deliver on the most fundamental of investment expectations.
Numerous studies over the past decade have proved the performance benefits of RI. And, although the Nuveen survey was conducted in late 2019, the strong performance of responsible funds during the COVID-19 crisis and subsequent market fallout (according to the Responsible Investment Association over 80% of Canadian RI funds outperformed their average asset class return on a three-month and one-year basis for the period ending March 31, 2020) will likely reinforce that view. In the minds of investors, the perception of underperformance long associated with responsible approaches looks to have been firmly put to rest.
Taking performance as a given, it’s clear responsible investors expect other returns:
- 79% see RI as a means of achieving environmental sustainability
- 46% would invest responsibly to realize values alignment
- 38% see RI as a means of mitigating overall investment risk
- 34% see RI as a better way to manage climate risks
These numbers speak volumes about RI’s power and versatility as an investment approach.
However, the big breakthrough that might ensure investors really can have it all, may not be around their attitudes towards RI, but rather the attitudes of their advisors.
Advisor engagement with responsible investing has remained stubbornly low for years. In 2018, a study by Desjardins revealed that only 18% of investors had discussed RI with their advisors2. With widespread RI adoption being the goal, the gap between investor demand and advisor engagement is a big hurdle. Just like the perception of underperformance, however, it is a hurdle that we seem to be surmounting.
In the Nuveen study, 65% of advisors indicated they now proactively raise RI with their investors. That could have something to do with the fact that three quarters of advisors also claim to understand their clients are as committed to social and environmental causes as they are to performance potential. Similarly, the percentage of advisors who describe themselves as “very familiar” with RI has also jumped from 18% in 2015 to 53% now.
Are advisor attitudes changing as fast in Canada? The most recent Investment Executive Brokerage Report Card, released in May 2020, indicated 60% of advisors are now initiating RI conversations with their investors. That’s a quantum leap from previous research. It’s just one snapshot, but it’s extremely encouraging if it represents a growing trend.
Investors have made a bold statement that when it comes to their hard-earned investment dollars – they expect to have it all. It would appear advisors are getting that message and are prepared with RI solutions to help them meet that lofty goal.
- Nuveen, 5th Annual Responsible Investing Survey, 2020
- Desjardins, Responsible Investment Survey, 2018