Social issues are the key factor for investors when deciding to switch to a socially responsible portfolio, reveals a new study.
The findings come as the coronavirus crisis throws a spotlight on social responsibility and the way our behaviour impacts the planet and society.
The sustainability and societal impact of investing in a business is measured by three central factors – environmental, social and governance (ESG). Digital wealth manager Nutmeg measured the importance of each one to UK investors.
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Social issues, such as working conditions and human rights abuses, came out on top with more than half of investors (54 per cent) being “very likely” to change their high return portfolio if they found it didn’t support good societal practices.
Investors’ next priority, according to the study, is the environment, with 39 per cent saying they would be “very likely” to change their portfolio if their investments were bad for the environment. This would include funding businesses with heavy carbon emissions or creating pollution and waste.
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.
Finally, over a third (35 per cent) said they would swap their portfolio if they discovered their existing one invested in businesses with governance concerns, such as their business ethics and tax transparency.
Overall, a massive 95 per cent of investors say they are aware of social and environmental issues that affect them and the world around them. They reported that climate change, human rights and animal welfare were top of the agenda.
James McManus, chief investment officer at Nutmeg, 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 more like to strike a cord 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.”
While nearly half of respondents rated being wealthy as important or very important to them, the findings also show that a quarter of respondents fear low returns from investing in socially responsible portfolios.
Mr McManus 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 for every level of risk in their first calendar year.”
The study shows attitudes towards SRI are becoming increasingly positive with nearly a third of the investors surveyed saying they wouldn’t continue to invest in a company that didn’t behave in a socially responsible way. Meanwhile, nearly half (44 per cent) said they were unsure of what they would do. Only a quarter of investors said they would continue to invest.