Findings from the latest Wells Fargo/Gallup Investor and Retirement Optimism Index survey (conducted February 10–16, 2020) reveal significant opportunities for our industry to help investors learn about sustainable investing and align their investments with their personal preferences and sustainability values.
According to the survey, a large majority of U.S. retail investors aren’t yet familiar with the concept of sustainable investing—but once they learn what it is, many of them express interest in investing in companies that fit with their values. We in Wells Fargo’s Wealth & Investment Management businesses can help investors in both of these areas.
You don’t know what you don’t know
Three in four U.S. investors say they’ve heard little or nothing about sustainable investing, according to the survey, and only 25% have heard a lot or a fair amount.
As it turns out, this lack of familiarity is the biggest reason investors give for not currently using sustainable investing funds. Nearly half (47%) of investors who don’t currently engage in sustainable investing say that not knowing enough about it is a major factor explaining their lack of participation. Another 24% say it’s a minor factor.
For the minority of investors who are already aware of sustainable investing, most of what they’ve learned on the topic has come from their own research—not from a financial professional, a family member or friend, or even through the media.
Only 12% of investors in the survey say they’ve heard about sustainable investing from a personal financial advisor. Among employed investors with a 401(k), just 4% learned about sustainable investing through their employer’s 401(k) program.
Helping investors learn about sustainable investing drives interest and appeal
In the survey, sustainable investing was defined for respondents as “a broad term that includes ‘environmental, social, and governance’ (ESG) investing, ‘responsible investing,’ and ‘social impact investing.’” They also learned that it “involves choosing investments based on the effect they have on things like the environment, human rights, diversity, and other social values, in addition to investment returns.”
Learning what sustainable investing actually means drew a strongly favorable response from many of the investors surveyed. The slight majority (52%) say they are very or somewhat interested in using sustainable investing funds and 7 in 10 (72%) would ideally allocate some portion of their investment portfolio (26% on average) to them.
Also, two-thirds of employed investors say they’d definitely (28%) or probably (41%) include sustainable funds as part of their 401(k) if their employer offered them.
Even before being told about sustainable investing in the survey, about 7 in 10 of all investors said they’d be very or somewhat likely to purchase stock or funds invested in companies that align with their values.
From my perspective, these findings show that investors are hungry for both information about sustainable investing as well as investment options that reflect their personal preferences. This should serve as a wake-up call for our industry to do a better job of providing sustainable investing resources and vehicles to investors.
Investors clearly are ready and waiting for us to help them learn more about sustainable investing and to provide access to investments intended to fulfill these wider objectives.
Hannah Skeates is the global head of ESG for Wells Fargo Asset Management.
Note: What’s the impact of COVID-19 on ESG and sustainable investing? Read our blog post in which we explore the pandemic’s effects through a long-term lens.
About the Wells Fargo/Gallup Investor and Retirement Optimism Index
The results of this Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a Gallup Panel web study completed by 1,029 U.S. investors, aged 18 and older, February 10–16, 2020. The Gallup Panel is a probability-based longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cell phones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. adult population, using the most recent Current Population Survey figures. For results based on this sample, one can say that the maximum margin of sampling error is ±6 percentage points at the 95% confidence level. Margins of error are higher for subsamples. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.
For this study, the U.S. investor is defined as an adult in a household with stocks, bonds, or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account. About two in five U.S. households have at least $10,000 in such investments. The sample consists of 68% non-retirees and 32% retirees. Of total respondents, 43% reported annual incomes of less than $90,000; 57% reported $90,000 or more. The Wells Fargo/Gallup Investor and Retirement Optimism Index is an enhanced version of Gallup’s Index of Investor Optimism, which provides the historical trend data. The median age of the non-retired investor is 45 and the retiree is 68.
Wells Fargo Wealth & Investment Management, a division within the Wells Fargo & Company enterprise, provides financial products and services through bank and brokerage affiliates of Wells Fargo & Company. Brokerage products and services offered through Wells Fargo Clearing Services, LLC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. Bank products are offered through Wells Fargo Bank, N.A.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the fund and its share price can be sudden and unpredictable. Investing in environmental, social, and governance (ESG) carries the risk that, under certain market conditions, the investments may underperform products that invest in a broader array of investments. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and liquidity in the market, including a robust secondary market. Investing primarily in responsible investments carries the risk that, under certain market conditions, an investment may underperform funds that do not use a responsible investment strategy.