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Image shows a broker and prospective buyers looking at a solar energy system. SmartAsset's latest study looks at the characteristics of individual investors who are interested in ESG.

Socially responsible investing – commonly referred to as environmental, social and governance (ESG) investing – is gaining traction among institutional investors as well as individuals. According to a recent Natixis report, the percentage of institutional investors that implement ESG approaches increased by 18% from 2019 to 2021. Similarly, Natixis reports that a growing number of individual investors are interested in ESG. Though the names of large institutional investors adopting ESG approaches are often widely publicized, there is less research surrounding the question of which individual investors are driving this interest (and therefore increase in assets). Keeping this in mind, SmartAsset took a closer look at the characteristics of individual investors who are interested in ESG.

Specifically, we examined how investor demand for socially responsible investing strategies varies by six factors: years from retirement, sex, savings, income, level of investment knowledge and geographic region. Using SmartAsset data, we calculated the distribution of individuals who express different levels of socially responsible investing interest (“Must have,” “Somewhat interested” and “Not interested”) according to each factor. For more information on our survey, its results and how we put the findings together, read the Data and Methodology section below.

Key Findings

  • Close to three in four respondents reported some level of interest in socially responsible investment strategies. SmartAsset data shows that about 27% of investors looking for a financial advisor say that socially responsible investing is a “must have.” An additional roughly 46% of investors say that socially responsible investing is “nice to have” when putting together a financial plan.
  • Women are about 11% more likely than men to express ESG interest. Our data shows that about 79% of women are likely to say that socially responsible investing is a “must have” or “nice to have.” Meanwhile, less than 68% of men report ESG interest, responding that socially responsible investing is either a “must have” or “nice to have.”
  • An individual’s level of investment knowledge is the greatest indicator of interest in socially responsible investing. Compared to other demographics (i.e. age, sex, savings, income and geographic region), our logistic regression model (estimating the probability of an event based on prior data) shows that interest in socially responsible investing varies the most according to an individual’s reported level of investment knowledge. Individuals who are “very comfortable” with investing are much more likely to have a strong opinion on ESG relative to individuals who are “not comfortable at all” or only “somewhat comfortable” with investing.

Younger individuals are more likely to be interested in socially responsible investing than their older counterparts. Close to 32% of individuals over 30 years away from retirement reported socially responsible investing is a “must have” when building out a financial plan. Meanwhile, only about 24% of retired individuals say socially responsible investing is a “must have.” The chart below shows differences in ESG interest according to age, comparing individuals who are over 30 years away from retirement and individuals who are already retired.

Image is a graphic by SmartAsset showing two pie charts and titled "How Does Retirement Status Affect ESG Investing Interest?"

As previously noted, women are more likely to be interested in ESG investing than men. Close to 29% of women say that socially responsible investing is a “must have” compared to less than 23% of men. Additionally, a slightly higher number of women say that ESG investing is a “nice to have” relative to men (49.84% vs. 45.03%). The bar graph below shows how our model expects men and women to answer the question, “Is socially responsible investing important to you?”

Image is a bar chart by SmartAsset titled "Comparing ESG Investing Interest Levels Between Men and Women."

Following age and sex, we considered how interest in socially responsible investing varies by socioeconomic status. Our data shows that savings and income are generally inversely correlated with ESG interest. That is, individuals with lower savings and incomes report more interest in ESG, while individuals with higher savings and incomes report less interest. This pattern is not, however, true across the board. For instance, roughly 28% of individuals with savings exceeding $5 million say that ESG investing is a “must have,” compared to about 18% of individuals with savings between $1 million and $5 million. It’s important to note that the sample size among respondents with savings in each of those brackets (i.e. $1-$5 million and $5 million+) is much smaller than the other four savings brackets in our study.

Image is a bar chart by SmartAsset titled "Are Individuals With Higher Savings Less Interested in ESG Investing?"

As previously noted, level of investment knowledge affects ESG interest the most across the six factors we considered, as there is the largest variance in responses. Many individuals who are “somewhat comfortable” with investing fall in the middle of the road when it comes to ESG, with 53.70% saying it is “nice to have.” This is relative to only about 38% of individuals who are “very comfortable” with investing choosing that same response. The distribution of responses by individuals who are “not comfortable at all” with investing is closer to the distribution of responses individuals who are “very comfortable” with investing – more than it is to those who are “somewhat comfortable.” Of individuals who are “not comfortable at all” with investing, 22.82% say the ESG is a “must have,” 43.37% say it is “nice to have” and 33.81% say it is “not important.”

Finally, we consider socially responsible investing interest according to the four main Census-designated regions: Northeast, South, Midwest and West. According to SmartAsset data, interest in ESG and related strategies varies only slightly across these four regions. About 73% and 75% of individuals in the Northeast and West, respectively, expressed interest in socially responsible investing, compared to roughly 72% of individuals in both the South and Midwest. These results indicate that though differences in ESG interest according to geographic region are statistically significant, the region in which one lives is generally not a strong predictor of socially responsible investing interest.

Data and Methodology

Data for this study comes from SmartAsset’s financial advisor matching tool. All responses come from January 1, 2021 through June 31, 2021.

After calculating the predictive probabilities across all six demographics (i.e. years from retirement, sex, savings, income, level of investment knowledge and geographic region), we tested for statistical significance for each category by running a chi-square test for independence. For each demographic, we found a statistically significant p-value (i.e. p <0.05) and the null hypothesis was subsequently rejected. This means that ESG interest is dependent on years from retirement, sex, savings, income, level of investment knowledge and geographic region. We additionally used a multinomial logistic regression model to determine how the factors work together as ESG indicators.

Tips for Maximizing Your Investments

  • Take advantage of compound interest. One of the most important things to note about saving is that it helps to start early and waiting to invest can decrease your potential total return on a potential investment. As previously noted, compound interest is interest that’s generated from existing earnings. That is, when you put money into a savings account earlier, the interest compounds—you earn interest on the money you initially invested as well as the interest that money has already made. To see how this works in action, take a look at our investment calculator.
  • Some kind of retirement account is better than none. If a 401(k) is not available through your job, consider an IRA. 401(k)s are often valued more than IRAs since there is a possibility that your employer will match your contributions to the plan up to a certain percentage of your salary. This means that if you chose not to contribute, you are essentially leaving money on the table. However, if your employer does not offer a 401(k) plan, an IRA is another great option. In 2021, the IRA contribution limit is $6,500 for people under 50 and $7,500 for people age 50 and older.
  • Seek out trusted personal finance advice. Whether you are switching jobs or going back to school, a financial advisor can help you make smarter financial decisions and set you on the right track for retirement. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Questions about our study? Contact us at press@smartasset.com.

Photo credit: ©iStock.com/xavierarnau

Stephanie Horan, CEPF® Stephanie Horan is a data journalist at SmartAsset. A Certified Educator of Personal Finance (CEPF®), she sources and analyzes data to write studies relating to a variety of topics including mortgage, retirement and budgeting. Before coming to SmartAsset, she worked as an analyst at an asset management firm. Stephanie graduated from Williams College with a degree in Mathematics. Originally from Philadelphia, she has always been a Yankees fan and currently lives in New York.
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