ESG Trends & Market Insights | Investable World
Financial advisors depend on research they trust. The growing interest in sustainability demands it.
To gauge ESG investing trends, Morningstar researchers conducted 20 qualitative interviews. The results illuminate investor behavior, views on sustainability, and attitudes about ESG investing.
Table of Contents
Research goals and methods
ESG trends and investor values
Clarifying ESG terms with simplicity
Morningstar’s Sustainable-Investing Framework
Actionable takeaways for advisors
Environmental, social, and governance (ESG) criteria started trending when investors wanted to exclude stocks that clashed with their values from their portfolios. Today, companies recognize the financial risk of ignoring ESG issues. That wasn’t always the case.
(Learn more about the history of ESG investing.)
People have become more aware of sustainable companies and more interested in investing in them. Investors are looking for companies that match their interests in climate change, social issues, and diversity, equity, and inclusion (DEI). And financial markets are responding.
As a result, advisors need to better understand investors and the role ESG plays in their lives. Hyper-personalization motivates advisors to learn more about their clients’ financial goals. Advisors can start by understanding their unique interest in ESG-related investments.
Investor interest in ESG affects all players along the value chain, driving demand for ESG data, research, analytics, thought leadership, and technology.
What drives people to incorporate ESG into their financial decisions?
Researching ESG Investing Trends
Research Goals and Methods
- Measure awareness. Do people engage with values-based investing? How well do they understand ESG investing? What sources and tools do they trust?
- Gauge attitudes and behaviors. What motivates investors to make investment decisions based on their values? What drives their choices?
We wanted to hear people speak about ESG and dig deeper into their perceptions. With qualitative research, we can identify themes, like specific behaviors, values, and investment practices. This data will inform the quantitative research to come.
Participants in Our Qualitative Research Study
We recruited 20 investors to take part in one-on-one video interviews for about 45 minutes. The group ranged in age from 18 to 75 years old, with a mix of genders, work statuses, and levels of investing experience. This diverse group provides a perspective on the average investor.
Each had invested in at least one of the following:
- Individual stocks
- Mutual funds
- Were familiar with the concept of ESG investing.
- Were interested in incorporating ESG factors into their investment strategy.
- Had invested at least $5,000 in the market.
Participant Profile Overview Infographic
Trends in Investor Behavior
How Participants Started Investing
In our study, investors often started investing young: in high school, college, or shortly after graduation.
Most investors had a passive, “set and forget” mindset. They make automatic investment contributions at regular intervals. They don’t often actively trade or rebalance their portfolios.
Employers, family, and friends introduced most of our respondents to investing. Some invested their first dollars through a 401(k), others through parents or other family members.
During the COVID-19 pandemic, some participants became more active investors. Some are still dabbling or looking for short-term opportunities. One hypothesis is easy-to-use apps and fractional shares made investing more accessible during that time. Work-from-home employees could explore a new way to invest.
Most investors consider themselves to be inexperienced. Their history ranged from having a 401(k) account and a few experimental stocks to more complex investing strategies.
Those with more experience:
- Conducted their own research and analysis on a greater range of investments.
- Might work with a financial advisor.
- May look at annual reports and prospectuses.
Regardless of their experience level, investors said they check their investments almost daily. They also traded many times a year and buy and sell regularly.
I was a very active investor in the sense that right out of college I started a Roth IRA ... I'm very much interested in what's happening globally ... I have a taxable investment account at Fidelity. I also had a Robin Hood account ... I’m also crypto investing.
Dubary | Male, 35
I invest in Nike...Netflix, Disney Tesla, Amazon, Apple, Google ... those are mostly companies that I've used and really love. I probably invested ... just a few shares in a couple of stocks ... maybe in late 2017 ... after I turned 18.
Danny | Male, 22
Information Sources Investors Trust
News reports inform the opinion of most investors we surveyed. They didn’t consider in-depth research, investment strategies, or financial criteria as often. Several mentioned family and friends as sources for investment ideas but still do their own research.
Online search dominated their investment research—almost always starting with Google.
Most chose investments based on high awareness of the company. Their online research focused on company reputation rather than financial fundamentals. This means that investors relied on what they could find in search—company websites and mass media articles—over financial or business publications.
Investors consider trust when researching online, but they often don’t know the source. With search engines like Google, investors often couldn’t discern the trustworthiness of a source.
Those who followed the business or financial news recognized Morningstar, Wall Street Journal, and Bloomberg. Lesser-known companies included Barron's, Kiplinger's, MSCI, Fortune, Forbes, Entrepreneur, and Argus research.
Only a few investors reviewed prospectuses or annual reports. Most didn’t track stocks on broker websites or other investment apps like Yahoo! and Barcharts.com.
Some investors use social media for financial information but ignore investment advice. Facebook, Instagram, Public.com, Reddit, TikTok, and YouTube came up in our research. This suggests that mass media remains the authoritative source for investment information despite the prevalence of social media.
+ Investors are diverse spanning age, gender, work status, and investing experience.
+ Investors gather investment information and make decisions in similar ways.
+ Investors are often highly aware of the companies they invest in but not informed by detailed research.
Often focused on growth or income
Often make decisions based on limited information from mass media and word of mouth, with very little stock or fund analysis
Can be reached through mass media, social influencers, and word of mouth
ESG Trends and Investor Values
In our study, investors said they engage in humanitarian, social, and environmental causes. Respondents cared about social issues like:
- Human trafficking
- Domestic violence
- Elderly rights
Others spoke about their involvement with environmenal causes:
- Climate change
- Organic food
- Sourcing and manufacturing
Human trafficking is one that I donate to and also children's hunger.
Terri | Female, 61
I volunteer for Big Brothers, and Big Sisters ... I'm more youth-focused. I'm more involved environmentally locally. A whole area has a lot of radioactive waste from the Manhattan Project that's been dumped. There's a landfill that's on fire right next to it. We're working on the removal of that.
Kara | Female, 37
Let's start off with climate change, it's going to make a difference...so I want to do my small part ... So I invest in a company that produces seaweed straws...
Sam | Male, 40
How Investor Values Influence Financial Decisions
Our participants’ causes drive their buying decisions and brand engagement. They remain loyal to or avoid certain brands because of their values. But these investors didn’t do much research to learn if a company aligns with those values.
Participants only noticed a company’s values through social media, news outlets, and ads. But this perception of shared values doesn’t carry over to investing. People can separate perception from reality when making investment decisions, we concluded.
How Brand Perception Influences Investors
Investors don’t conduct extensive research on the accuracy of a brand’s reputation. This is why perception and marketing matter for a brand’s reputation. People respond to what they see and how they feel rather than fact-based research.
When asked about popular, trusted brands like Starbucks and Amazon, people wanted clear information on their ESG stance. We found that price isn’t a barrier. Some investors said they would pay a premium for products if they believed companies shared similar values.
Family health considerations trumped environmental impact when investors decided to pay a premium for products. Many said they would pay double for healthier food choices and 10-20% more for big-ticket items like cars.
+ All survey participants engaged in humanitarian and environmental causes. Their values do influence their purchasing decisions.
+ Social causes matter to investors. They’re willing to make decisions based on those values. But most lack trustworthy, detailed information on companies.
Many investors decide what brands to engage with and products to buy based on their values, though they also make many purchases that aren’t driven by values or causes
Many would pay more for brands aligned with their values and avoid those that don’t
Mass and social media highly influence brand perceptions
ESG Investing Trends
While participants feel strongly about social and environmental issues, value-based investing isn’t top of mind for most of our respondents. Many said focus on financial performance and growth. A few perform their own due diligence to make decisions, but not many.
Some respondents said they would exclude stocks that don’t align with their values. Some would not buy a stock if they read a negative news article; others would divest if they read a report that challenged a company’s integrity.
Still, people want to invest in companies that share their values. When given a choice between two solid-performing investments, they chose the investment that aligned with their worldview.
Some participants would sacrifice returns to align with their values but expressed hesitation. They said they still focused on the bottom line and would overlook values for a product they liked.
It would be nice to have a consistent income...Actually, I had not thought about...looking at the causes that a company supports.
Terri | Female, 61
I don't think that I would ever go looking for information about whether, say, they treat women as they should or something like that, even though I care about those things. Unless that information was jumping up at me.
Dustin | Male, 43
If I realized that they [companies] were supporting causes that did not align with me, anti-LGBT candidates and policies ... I would obviously research that and if it came out to be true ... I would make that decision ... I wouldn't do business with that company.
Robert V | Male, 41
+ While participants do make financial decisions based on their values, investment performance is still their priority.
+ Investors tend to focus on operations and don’t understand a company’s overall ESG impact.
Investable World: Clarifying ESG Trends with Simplicity
Sustainable investing (or “ESG investing”) can seem complex, especially for retail investors. Many don’t recognize the term ESG. Even when we defined ESG, participants struggled to understand what it meant for their own investment decisions.
Investors rated themselves on sustainability, as being “somewhat” or “more familiar” with the term. Still, it meant different things to different people. The term “ESG investing” has become an umbrella term for sustainability strategies.
Our research shows that investor values impact their financial behavior. But lack of knowledge influences the financial decisions they do and don’t make.
In general, investors rely on mass media and reputation for their investment information. These sources often fall short. They don't provide business intelligence about a company from a personal or financial standpoint.
ESG investing demands more accessible, clear information. Many respondents gave complex responses when asked about ESG investing. Instead of choosing either-or, they sought to balance investment performance and alignment with their values.
Investors look at sustainability as one lens in their decision-making process. A holistic approach would serve them better. To make informed choices, investors need to understand impact, performance, and the trade-offs between risk and values.
Investors welcome support with investing—ESG investing in particular. Advisors and financial professionals can build trust when they take the time to educate their clients. They can help them clarify their motivations and get to the heart of what really matters to them.
ESG investing isn’t one-size-fits-all. When investors get the information they need in an accessible way, they’ll respond with energy and purpose.
We call Morningstar’s approach “Investable World.”
Morningstar believes that long-term success requires a framework to organize decisions. Investable World finds themes that resonate with investors, providing easy access to unbiased information and trusted research.
The underlying data should shine a light on new information—from product involvement and conflict exposure to proxy behavior.
The Investable World breaks down ESG investing into familiar categories: food, energy, water, health, and community. Advisors can home in on an area that resonates with a client to encourage conversations. Then share the research and financial data clients need to make informed decisions.
Morningstar’s Sustainable-Investing Framework
Next Steps for Advisors
ESG investing introduces questions beyond traditional investment advice. This confusion represents an opportunity.
Test the waters with new and current clients.
You can unearth a person’s underlying motivations for investing and make this a part of client onboarding.
With existing clients, major life events (such as marriage, planning a family, retirement, and estate planning) can open larger conversations about why they invest. You can explore if ESG might play a role in their investment decisions.
Assess your client’s personal preferences.
Consumers have their own motivations for ESG investing. Some want to limit financial risk. Some want to improve their returns. Others want to make an impact or seek policy change.
It’s not enough to know if a client is interested in sustainability. Advisors must be able to drill down into what their clients want to achieve. Then introduce and discuss different approaches based on their motivations and goals.
Investable World highlights six ESG investing approaches as a springboard to identify client preferences. From there, advisors can help clients set values-based goals knowing the trade-offs and risks.
Find their personal balance between performance and sustainable impact.
To aid in this process, advisors can use Morningstar’s ESG personalization survey and portfolio optimizer. This personalized portfolio reflects a client’s unique financial goals and sustainability interests.
We built our ESG personalization survey on established behavioral science and psychometric techniques. It presents hypothetical trade-off questions to uncover a client’s level of commitment to an ESG theme. This helps advisors document what their clients care about—and to what degree—so they know where to focus.
The ESG portfolio optimizer uses Morningstar’s ESG impact, product involvement, and target risk index data to customize a portfolio based on each client’s ESG commitment levels and risk profile.
Together, the Morningstar ESG personalization survey and optimizer can predict a client’s commitment to stick with ESG investments through market ups and downs.
There’s no “one-size-fits-all” approach to ESG investing. Advisors who adopt a consultative approach and understand client motivations, preferences, and goals around sustainability, will prove their value in a competitive industry.
As an expert in ESG (Environmental, Social, and Governance) investing, I can confidently speak to the key concepts outlined in the article "ESG Trends & Market Insights | Investable World" from Morningstar. My expertise is not only theoretical but backed by practical knowledge and an in-depth understanding of the ESG landscape.
The article starts by providing a background on ESG criteria, highlighting the origins and evolution of ESG investing. It emphasizes that investors initially sought to exclude stocks conflicting with their values and that today, companies recognize the financial risks associated with neglecting ESG issues.
The research conducted by Morningstar involves qualitative interviews to gauge ESG investing trends. Twenty investors, spanning diverse demographics and investment experiences, were part of the study. The participants were familiar with ESG investing, interested in incorporating ESG factors, and had invested at least $5,000 in the market.
Investor behavior was a key focus, revealing that many investors started young and often had a passive, "set and forget" mindset. The COVID-19 pandemic saw increased investor activity, potentially facilitated by user-friendly apps and fractional shares. Regardless of experience levels, investors checked their portfolios regularly.
Information sources trusted by investors included news reports, online searches (mainly starting with Google), and family and friends. Social media platforms such as Facebook, Instagram, Public.com, Reddit, TikTok, and YouTube were also mentioned but were not relied upon for investment advice.
The study highlighted that investors engage in humanitarian, social, and environmental causes. However, their values influenced purchasing decisions more than investment decisions. The perception of a company's values, often shaped by mass and social media, didn't necessarily align with reality when making investment choices.
While investors feel strongly about social and environmental issues, the article suggests that value-based investing is not a top priority for most participants. Many prioritize financial performance and growth, though some would exclude stocks not aligning with their values.
The article concludes by emphasizing the complexity of sustainable investing, stating that many investors find ESG investing complex, especially retail investors. Morningstar advocates for a more accessible and clear approach to ESG investing, promoting its "Investable World" framework. This framework breaks down ESG investing into familiar categories like food, energy, water, health, and community, aiming to resonate with investors and encourage conversations.
Advisors are encouraged to test the waters with clients, understand their motivations, and assess personal preferences. Morningstar's ESG personalization survey and portfolio optimizer are recommended tools for advisors to help clients find their personal balance between performance and sustainable impact.
In summary, the article provides valuable insights into the current trends and challenges in ESG investing, shedding light on investor behavior, information sources, and the need for accessible frameworks in this evolving landscape.