Advisers’ ‘Gatekeeper’ Role Can Help Spur Greater ESG Investments

Investor interest in environmental, social and governance (ESG) investing continues to increase and has much more room to grow through greater visibility into the social and environmental impacts of investments, according to Nuveen’s sixth annual “Responsible Investing Survey.”

According to the survey, better performance is the most important reason for participating in ESG investing, cited by 55% of ESG investors. Among ESG investors, 91%, of respondents agree that greater visibility into the specific societal or environmental benefits of ESG investments is essential.

The survey results showed that while ESG investments are increasing, many investors remain unfamiliar with the approach. Climate change and concerns about recent natural disasters and societal issues are driving fresh interest in ESG investing, with many investors reporting that their investing behavior has changed because of these concerns. 

Among the respondents surveyed, 66% said recent climate disasters have made them more interested in ESG investing.

Additionally, the survey found that 53% of ESG investors say seeing the tangible results of ESG investments is difficult, and 95% of those investors also report they would increase investments further if it were easier to discern the outcomes. Among ESG investors who say seeing the results isn’t hard, 94% agree that greater visibility has spurred them to allocate additional amounts to ESG investments, the report found.

“The ESG marketplace is increasingly sophisticated, and investors recognize it is no longer enough for a company to simply claim it is committed to ESG principles,” says Amy O’Brien, global head of responsible investing at Nuveen. “We believe ESG investors are telling us that when they invest in a company that says it is ESG-focused, they want to see tangible evidence of that commitment in how the company runs its operations and behaves toward its key stakeholders. Indeed, authentic dedication to ESG management is a criterion that we now are applying across our entire investing platform.”

The Nuveen survey also shows that 53% of investors polled are currently participating in ESG investing, the first time it has been a majority of survey respondents. That figure is also up from 9 percentage points from 2019.  Greater interest in ESG investing means there is room for such strategies to grow further and gather additional inflows from investors: 23% of all investors don’t have any knowledge of ESG investing and 20% say they have heard of it but are not familiar with ESG strategies.

As ESG investing has grown, retirement plan sponsors and advisers working with defined contribution (DC) plans have increasingly included ESG investments as options for participants. Along those lines, earlier this year, the Department of Labor published a proposed rule to clarify the application of Employee Retirement Income Security Act (ERISA) fiduciary duties of prudence and loyalty to select investments and investment courses for ESG.

With many investors still unfamiliar with ESG investing, educating them on the approach can spark additional interest, the Nuveen report found.

When ESG strategies are defined, 59% of investors who are not currently involved or never knew of ESG investing say they are interested in investing in such options in the next year.

For many investors, an adviser’s recommendation is a significant motivator for getting engaged, with 50% of investors reporting an adviser’s suggestion as a reason for participating in ESG investing.   

“Our survey suggests that financial advisers are important ‘gatekeepers’ into the world of ESG investing and have a powerful role to play both in introducing investors to the sector and stimulating further market growth,” O’Brien says. “There are compelling benefits for advisers as well: Investors tell us that support for the approach strongly sustains their loyalty to an adviser.”

Most investors surveyed (82%) report that they have used or would use advice from an adviser to decide on the current allocation of ESG investments in a portfolio, and 79% of all investors agree that they would remain loyal to a financial adviser who actively helps them to invest in funds that have positive impacts on the world.

Nuveen’s “Responsible Investing Survey” was conducted online by The Harris Poll from August 24 to September 3 and covered 1,007 investors, including 332 who said they are currently engaged in ESG investing.