Treehugger Investors Walk the Walk

A recent survey of Treehugger and Investopedia readers found that through the course of the pandemic, interest in environmental, social, and governance (ESG) grew significantly.

According to our sister site, Investopedia:

"Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights."

Kara Greenberg of Investopedia writes that "a majority or 58% of respondents reported that their interest in ESG grew in 2020, and nearly a fifth or 19%, began incorporating ESG standards into their portfolios during that period." ESG investments are also likely to grow going forward, with just over two-thirds or 67% of respondents claiming they plan to invest more in companies with strong ESG initiatives over the next five years."

The survey found that GenX leads the pack in "investing in a way that aligns with my values" followed by millennials, with the boomers–who have all the money–trailing behind.

Investors’ top ESG stocks and investment firms are full of surprises

However, Caleb Silver of Investopedia notes the survey results indicate that "many investors admit that when it comes to researching companies and their ESG impact, they’re winging it. The most common signal for investors that an investment aligns with their ESG criteria is that the company is generally perceived as “better” than industry peers at ESG initiatives."

"The main way surveyed ESG investors apply ESG criteria to their investment decisions is by investing in individual companies, and excluding industries from their portfolio. 45% say they’ve invested in a company or fund, while 29% say they’ve divested or sold for ESG-related reasons."

There are some pretty interesting choices for the top ESG investments. None of the companies on this list are explicitly "green" but they are all big, and it is no surprise that Tesla is in the second spot after "none of the above." Silver says the ESG rating companies call Tesla a “High Risk” to exposure on multiple ESG criteria."

Apple is next. Treehugger has said nice things about its transparency when it comes to carbon footprinting but has noted "Apple is by no means perfect. Many complain about repairability and planned obsolescence — I, for one, do want that shiny new iPad."

The number of people checking off oil, gas, and cigarette companies is also pretty surprising–really, 6% for ExxonMobil? Perhaps Silver is right when he notes "Investopedia and Treehugger research shows that as demand for ESG investments grows, investors want better ways to screen for ESG issues."

Pollution and working conditions are top ESG investor concerns

This was encouraging: Compared to some surveys of the general public discussed on Treehugger which found that people believe recycling can stop climate change, the responses here seem pretty sophisticated. The same people might check off Tesla as the best company for ESG and at the same time check off fair and safe working conditions, but pollution has driven the environmental movement for decades, carbon emission reduction on its own is pretty high, and many might be including it in pollution. That fair and safe working conditions rates are so high among investors is surprising and encouraging.

Greenberg also notes that "returns aren't always the most important to ESG investors, with nearly half admitting they’d accept up to a 10% loss in a five-year period for a company that aligns exceptionally against ESG standards. On average, ESG investors say about 40% of their portfolio aligns with ESG criteria."

Greenberg says that "aside from faith-based and data-privacy issues, Treehugger readers were more likely than Investopedia readers to cite ESG issues as important to them." The difference between Treehugger and Investopedia ESG investors was subtle and mostly a matter of degree; while anyone who bothers about ESG in their investing is going to be concerned about these issues, the Treehugger readers were just a little bit more so. The biggest and spikiest differences came in wildlife conservation, animal rights, and forest conservation.

But my favorite chart of the bunch shows how ESG investors don't just care about their money, but they walk the walk in their lives as well. They are well over twice as likely to buy environmentally friendly products, avoid single-use plastics and even buy Fair Trade. They are three times more likely to drive an electric car and eleven times more likely to buy carbon offsets.

We often make the case on Treehugger that one good thing leads to another and that it all adds up to a lifestyle, so it shouldn't be a surprise that ESG investors do all these things. But it is still wonderful to see it in data.

Thanks to Amanda Morelli and Adrian Nesta for the data that made my day.