Hoover Institution (Stanford, CA) — US investors’ support for prioritizing environmental, social, and governance (ESG) concerns continues to slide, authors of a new study find, suggesting inflation, labor market tightening, and general uncertainty is to blame.
The 2024 Survey of Investors, Retirement Savings, and ESG is a coproduction of the Corporate Governance Research Initiative at Stanford’s Graduate School of Business, the Arthur and Toni Rembe Rock Center for Corporate Governance, and the Working Group on Corporate Governance at the Hoover Institution.
The study found that for the second straight year, support for ESG is down among a wide swath of investors, including institutional investors, shareholders, and retail investors, such as those investing in 401(k)s and other retirement accounts. There is a particular decline in ESG support among younger investors, who may be the ones most impacted by higher inflation and job market softness and thus less likely to believe they can make sacrifices in their portfolio for ESG aims.
“We are seeing a leveling of support for ESG across generations,” Hoover Institution senior fellow and Stanford Graduate School of Business finance professor Amit Seru says in the report. “Two years ago, young investors were twice as likely to say they are very concerned about environmental and social issues as older investors. Today, the differences are only a few percentage points.”
“Sentiment has settled at a level where deep concern for ESG is a minority position,” he continues. “Two years of economic strain appear to have taken their toll on investors’ enthusiasm for stakeholder advocacy.”
The survey asked respondents about a wide variety of commonly accepted ESG priorities, including sustainability, working conditions, board independence, and sourcing of renewable energy.
Study coauthor David F. Larcker, Stanford Graduate School of Business professor emeritus of accounting, said the findings suggest investors view ESG concerns as something of a “luxury” that “they are willing to pay for when feeling economically flush but the first thing to go when wealth disappears.”
The survey found a rising reluctance of younger cohorts of investors to sacrifice any portfolio returns in exchange for progress on major ESG priorities.
For instance, when asked how much of their theoretical retirement portfolio of $100,000 they’d be willing to lose to ensure the companies they’re investing in achieve levels of diversity in their workforces representative of the US population, the number of Millennial and Generation Z respondents who said they wouldn’t sacrifice anything rose from just 12 percent in 2022 to 47 percent this year.
But among Baby Boomer–generation and older investors, the number of respondents who said they wouldn’t forego anything to achieve this goal decreased from 70 percent in 2022 to 65 percent this year.
The study also found similar declines in young investors willingness to sacrifice investment savings for the causes of carbon emissions reduction, product sustainability, and reducing pay inequality in the firm’s workforce, among other concerns.
The survey further discovered that while a majority of registered Democratic investors continue to express support for ESG issues, the number of them willing to sacrifice a portion of the value of their portfolios fell by half, from 20 percent of Democratic respondents to 10 percent.
Meanwhile, Republican and independent respondents continued to express consistently high levels of opposition to ESG concerns, with almost none (1–5 percent) indicating willingness to forego any portion of their portfolio in exchange for improvements in firms’ ESG metrics.
Looking to the future, younger respondents indicated they have lower expectations for growth of their own portfolios versus older investors.
Over summer 2024, the study’s authors surveyed more than two thousand individual investors across the United States, distributed to form a representative sample across gender, race, age, household income, and state residence. They sought to understand how investors view ESG priorities of the companies whose stock they hold.
The study was compiled by Seru, Larcker, and Brian Tayan, a researcher of the Corporate Governance Research Initiative.
Read the full report here.
