Questionnaire respondents express frustration over the reliability of social and environmental information on their SRI holdings, and financial planner ignorance of SRI.
What do investors take into account when considering socially responsible investment (SRI), and what obstacles are there to the uptake of SRI?
To get into the minds of investors considering or practicing SRI, Matthew Haigh, a doctoral candidate studying SRI at Macquarie University in Sydney, Australia who teaches at Griffith University in Brisbane, conducted a survey of investors worldwide on their attitudes toward SRI. The most significant findings: investors perceive an information gap on social and environmental issues that holds them back from greater uptake of SRI, and they primarily fault financial planners who are undereducated about SRI.
"Investors in this study, in particular, were dissatisfied with the apparent ignorance of fund managers and financial planners with respect to social and environmental issues," said Mr. Haigh. "Financial planners were considered ignorant of SRI products and unable to offer relevant advice."
The questionnaire upon which the study was based yielded 404 responses, the majority (55 percent) of which came from Australia, with a little over a third (35 percent) coming from the US and Canada. The remainder of the responses, which came in from April 1 through May 14, 2004, issued from Denmark, the Netherlands, France, the United Kingdom, the United Arab Emirates, South Africa, Hong Kong, and New Zealand.
What were the most important considerations in respondents’ investment decisions?
"Unexpectedly, the only important economic factor was track record for financial performance . . . [otherwise,] the selection criteria that respondents rated important were all non-economic in nature," said Mr. Haigh. "Most important was the accuracy of information reported about social and environmental aspects of the stocks held in portfolios."
Conversely, lack of such information hindered respondents, most of whom intended to purchase or maintain their SRI holdings, from pursuing social investment.
"[H]alf of the respondents who were aware of SRI products had chosen not to invest in them," Mr. Haigh said. "Over half of investors in this study considered that information relating to or supplied by socially responsible mutual funds was insufficient, too complex, or not credible, opinions which were significantly associated with their intentions to purchase SRI products.
This information gap also led to sell-off, as 18 percent of respondents who bought SRI products subsequently sold most or all of those investments.
"Most had done so because they were dissatisfied with the amount of information provided on the social/environmental profiles of their investments," said Mr. Haigh.
Respondents included those who currently hold SRI products (mutual funds and pension funds), those who formerly held them, and those considering them. Respondents were predominantly male (56 percent), single (68 percent), and well educated (53 percent are postgraduates, while 83 percent hold bachelor degrees). The largest concentration of respondents (37 percent) was under 35, though respondents ranged the investment-age spectrum. This profile concurred generally with previous Australian and British studies of social investors, which only differed in finding a predominance of women investing in SRI.
This profile differs substantially from studies of mainstream investors, though. According to 2001 US survey data studied by the Investment Company Institute (ICI), for example, mainstream investors tend to be married or living with a partner, older (median age of 46), and less well-educated (52 percent college graduates) than social investors.
Respondents who lean toward SRI tend to have smaller holdings: 40 percent more of respondents invested in mutual funds in the $1,000 to $20,000 range chose SRI over mainstream investments.
"The relationship reversed in higher dollar holding brackets," said Mr. Haigh. "Only 15 percent of investors in this study who held both types of mutual funds had greater dollar holdings in socially responsible mutual funds."
The study suggests that financial planners would do well to bone up on social and environmental issues, and that the global SRI community can do a better job of delivering information to investors. Perhaps the most significant finding of the survey is the apparent disconnect between respondents’ intentions to support their social and environmental values by purchasing SRI funds, and their discovery that these funds may not achieve these objectives.
"Over half of respondents who had purchased SR funds suspected that their portfolios did not adequately reflect the social and environmental values that had originally attracted them to the products," Mr. Haigh concluded.