Interest in environmental, social and governance (ESG) investments has taken off, and there is no sign of slowing down.
And yet, when it comes to choosing assets that align with their values, investors still rely heavily on brand perception rather than company policies on ESG issues.
A recent survey by Investopedia and TreeHugger asked respondents to choose the stocks that they thought performed best under ESG standards. Surprisingly, many of the top picks were poor from an ESG rating perspective.
“We listed a bunch of other stocks out there, including energy stocks, just to see how our readers and TreeHugger readers would react,” Caleb Silver, senior editor of Investopedia, told Yahoo Finance (video above). “Many of them have also chosen some of these energy stocks as being very highly ranked in terms of ESG. This tells us that they are going into research and association with the brand rather than putting the stocks that interest them in an ESG filter.
Tesla (TSLA) took the top spot, with 30% of readers associating the electric vehicle maker with ESG values.
“What’s interesting about Tesla is that it doesn’t score very well, if you look at ESG ratings from MSCI or Sustainalytics, choose your supplier,” Silver said. “They’re pretty much in the middle of the pack.” (In fact, Sustainalytics rated Tesla as “high risk,” primarily due to governance and labor relations issues.)
Since the ESG encompasses the trio of environmental, social, and governance issues, strengths in one area might eclipse weaknesses in others. This was also the case for the second company, Apple (AAPL).
“I think Apple is known for its good employee culture,” explained Silver. “That’s what they do with their byproducts of iPods, iPhones, laptops that they make. Waste disposal was an important key element.
ESG investing is a question of ethics and “returns, returns, returns”
Sustainable investing skyrocketed in 2020, with entry into ESG products increasing to a record 140%.
This trend continued in 2021. Overall, sustainable investing now accounts for a third of all global assets and is expected to reach $ 53 trillion by 2025.
For these investors looking for information on ESG investments, several tools are at their disposal. In particular, Silver called the ESG filters and corporate ratings of MSCI, Morningstar, Sustainalytics, Yahoo Finance and Investopedia.
Silver added that efforts by financial services and the media to educate investors on ESG products and topics have failed, but there is a huge opportunity to fill this information gap.
“There is tons of information out there,” he said. “It’s just not about breaking through to the end investor, which is a huge opportunity for us, [but] also a huge opportunity for the investment management industry.
And it’s not just about personal values: above-average returns – in addition to social issues and the fight against climate change – have drawn investors to the ESG space, according to Silver.
When it comes to why investors choose ESG investments, “overall the answer is returns, returns, returns and most importantly long-term returns,” he said.
The survey also found that young people are particularly interested in ESG investments, indicating that the trend is not going to go away anytime soon.
“Young investors are much more interested in investing in line with their values,” said Silver. “They want to invest their money where their ethics lie. That’s why they choose ESG investments. Older investors are looking for returns, whether it’s retirement income or just to generate long-term income.
Grace is Associate Editor for Yahoo Finance and UX Editor for Yahoo Products.
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