Many investors still shy about putting money into climate change, social equality

People feel deeply about natural resources conservation, climate change and workplace equality, but they don't know how those issues can apply to their investments.

That's a key result of a national survey done by Allianz Life Insurance Co. of America, based in Golden Valley.

Institutional investors, including Allianz Life, and individual investors are increasingly interested in the approaches that companies take to environmental, social and governance (ESG) issues, believing sound corporate policies around such topics can be used to mitigate long-term risks and increase shareholder return over the long run.

Yet the survey showed only 15% of people understand what the term ESG means.

"This term ESG is not very well understood generally," said Todd Hedtke, chief investment officer at Allianz Life. "The pillars of it (ESG) people are very passionate about; they understand the issues. … Many of them are in the press day to day."

Almost three-quarters of the respondents even believe that an ESG investment strategy is "not only one that you can feel good about, but one that makes long-term financial sense."

Allianz worked with Ipsos, a market-research and consulting firm, to ask people how they value different ESG investing issues. Allianz and Ipsos received responses from 1,000 people, ages 18 and over with a household income greater than $50,000.

More than 70% of those surveyed said they care about the 16 individual topics that go into ESG strategy from environmental conservation to gender and racial equality.

"People are extremely interested here in these topics … but they don't know how to get information on it, they don't know what to do with it, they definitely don't have a grounding enough to make investment choices that follow," Hedtke said.

Hedtke sees the discrepancy as an opportunity. "It's an opportunity for financial advisers, who want to differentiate themselves," Hedtke said. "Be smart in this space and help educate your customers, because customers want to be educated."

Companies have recognized this trend and are increasingly providing investors and consumers reports on their ESG practices.

In just seven years, the number of S&P 500 companies issuing corporate social-responsibility reports has risen from 20% to more than 85%, according to the Governance & Accountability Institute, a sustainability consulting firm based in New York.

The rise in this voluntary reporting is being driven by investors' desire to have access to information on the environmental, social and governance practices that are informative and comparable.

Geoff Bell, associate professor at the University of Minnesota Duluth, teaches courses in strategic management and foundations of sustainable management. He's familiar with ESG investing principals as well as socially responsible investing (SRI) and corporate socially responsible investing (CSR) and said there is some data out there that suggests using these screens can lead to better long-term investment returns.

"The choice between do I live up to my values or do I maximize my return is minimal," Bell said.

Patrick Kennedy • 612-673-7926