Students participate in the Global Climate Strike march in New York.
Johannes Eisele | AFP | Getty Images
When the bull market flourished in 2021, many investors became interested in investments that reflected their values.
Environmental, social and corporate governance or ESG investments have attracted record levels of new assets. Last year, U.S. sustainable funds raised nearly $70 billion in 2021, up 35% from the previous record in 2020, according to Morningstar.
But despite record growth, ESG funds have not yet achieved mass adoption, according to new research from Betterment. To find out who does and doesn’t invest in ESG and why, the company recently commissioned an online survey of 1,000 investors with taxable investments.
Who likes ESG investing and who doesn’t?
More than a quarter of respondents – 26% – said they currently have some sort of ESG investment. Of these respondents, 59% have held these investments for more than a year.
Notably, the survey also found that 80% of investors who have ESG investments also have money in cryptocurrencies.
ESG investors are more likely to belong to younger generations, with 54% of Gen Z and millennials holding these investments. That compares to 42% of Baby Boomers and 25% of Generation Xers.
Many respondents (46%) said they had not researched ESG investing, but were interested in it.
Meanwhile, a majority of those not interested – 51% – said they felt they misunderstood ESG investing. Another 27% fear their returns will suffer if they invest in this area.
ESG vs crypto: a values conflict?
Most of the survey respondents don’t have crypto, 63%, compared to 37% who said they do.
Meanwhile, 80% of those who have ESG investments also have crypto investments. In comparison, only 22% of those without ESG investments in their portfolio have crypto.
But as more cryptocurrencies are used, it has led some to raise red flags about the power consumption of their mining operations. According to Betterment’s report, it is estimated that bitcoin mining alone consumes more electricity than many countries. Since electricity is tied to fossil fuels, the energy used to mine crypto could potentially increase greenhouse gas emissions.
Read more about personal finance:
The cost of financing a new car hits an all-time high of $656 a month
How to start building credit as a young adult
Here’s what the Fed’s rate hike means for you
The survey found that 96% of ESG investors who also invest in crypto are aware of these environmental concerns, while only half of non-ESG investors said the same.
In addition, 76% of respondents said it was very important or important for major cryptocurrencies to become more environmentally friendly.
“The industry itself is moving in a sustainable direction, in part because of all the control and investor sentiment around it,” said Raoul Bhavnani, communications director at Betterment, referring to Ethereum’s recent transition to a less energy-intensive method of generating new coins.
Will Market Problems Hurt ESG Enthusiasm?
As markets fall, the way investors view ESG funds as a tool to help them achieve their goals could be a determining factor in whether or not they sustain their recent growth.
When Betterment asked to what extent survey respondents would be willing to sacrifice performance to achieve their ESG goals, 17% said they were very willing, 16% said they were willing, and 25% said they were quite willing goods.
Meanwhile, 26% said they were not very willing and 16% said they were not willing at all.
Investors’ biggest hesitations about investing in ESG-based portfolios included whether it would reduce their returns, by 53%, followed by the impact the investment would have, 40%, or have higher fees than other funds, 39% .
Separately, a recent Morning Consult poll found that Americans are generally divided on ESG and profitability. While 40% of investors surveyed said they value profitability over corporate social responsibility, 37% of respondents said the opposite.