New research shows link between sustainable investing and financial wellbeing

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For financial advisers only

Our latest research shows a clear link between sustainable investing and financial wellbeing. It also highlights an opportunity to help investors understand the relationship between their investments and the world they live in, encouraging a more meaningful connection between people’s savings and where they’re invested.

Our research findings

Once a year we carry out research with around 10,000 UK residents in a nationally-representative study to canvas opinion of ‘real world’ views in society. Our latest research has given us an insight into the growing importance of sustainable and responsible investment.

Environmental factors driving the conversation

We found that 72% are concerned about environmental issues, 61% worry about equality, and 65% have concerns about poor corporate governance. So ESG issues are a concern for the majority. But while 80% recycle and 47% avoid single-use plastics, only 9% think of their pension as a way to support a more sustainable and inclusive society. Interestingly, for those surveyed who have an adviser (2,916 people), the 9% more than doubles to 22%, suggesting that advice encourages people to think about the sustainability credentials of their savings.

A mismatch between intent and action

The research also revealed a mismatch between people’s intent to invest sustainably and their actual investment choices. 32% believe they should invest half or more of their savings sustainably, whereas in reality, only 13% did. But again, advised clients were more likely to match intent with action, with 28% investing more than half of their savings sustainably. Significantly, 50% didn’t know if their savings were invested sustainably, suggesting a lack of engagement with their investments.

The biggest advocates are not who you think

A common misconception is that investing responsibly is primarily for the younger generations. Our research shows that the intent to invest sustainably is broadly consistent across the age groups, with pre-retirees (55 – 64 years) equal or slightly ahead of the younger age groups. However, pre-retirees also have the largest gap between intent and actual savings, revealing a potentially large pool of assets to transition. The research also showed that males were more likely to invest sustainably than females, with 35% of males believing 50% or more should be invested sustainably, versus only 28% of females.

Our research also shows wealth is an indicator of support for sustainable investing. Higher earners are more likely to invest sustainably than lower earners. There are also some big regional differences, with nearly twice as many Londoners as those in the North East investing savings in sustainable funds.

The link between sustainable investing and wellbeing

Where things get really interesting is when we look closer at the group who do invest sustainably. For example, 55% feel ‘joy or gratification’ from investing sustainably, and 62% feel a sense of ‘purpose’ – a feeling that they’re contributing to something meaningful, in doing so.

Taken as a whole, this would suggest that those who are financially well are more likely to invest sustainably and investing sustainably then reinforces their financial wellbeing.

The challenge

Of course, it’s unlikely that we’ll see this potential upswing in engagement unless investors understand the role their savings can play in supporting their moral convictions.

This could be challenging ─ we found 55% aren’t aware of or don’t understand ‘responsible investment’, ‘sustainable investment’ or ‘ESG investing’. The industry clearly needs to do more to educate investors so they can make informed decisions.

In addition, 35% are happy to accept a lower return from sustainable investments. While this indicates a strong conviction amongst those investors, it highlights a commonly held belief that you must sacrifice returns to invest in line with your convictions. As the relatively new kid on the block, sustainable investments have lacked the track record, until recently, to challenge that perception.

While past performance is not a reliable indicator of past performance, the industry must make greater efforts to share its conviction with investors that sustainable investing leads to better risk management and can produce stronger long-term returns ─ albeit with no guarantees.

Narrowing the gap

Communication is paramount to narrowing the gap between investors’ clear desire to behave responsibly and their lack of knowledge about the role their savings can have in achieving this.

By raising awareness and providing choices that match the causes customers care about, investing can become as much a part of someone’s decision making as recycling or reduced energy consumption.

Providers can help by bringing investments to life, with jargon-free education and information, illustrative examples and case studies. However, communications must be able to substantiate claims to avoid potential greenwashing.

However, the real key to narrowing the gap is advice. Our research shows a clear correlation between receiving advice and investing responsibly. 59% of those surveyed who had a financial adviser invested 40% or more of their savings sustainably, whereas only 12% of those who had a financial adviser had no exposure to sustainable investing.

 

The value of investments may go down as well as up and investors may get back less than they invest. This article is for financial advisers only. It mustn’t be distributed to, or relied on by, customers or any other person. It’s based on our views and opinions and shouldn’t be interpreted as recommendations or advice.

Aegon research, based on a survey of 10,021 people in the UK, as at August 2021. Financial adviser related results, based on subset of 2,916 people.

To find out more about responsible investments and the support Aegon offers please visit aegon.co.uk/investments/advisers/responsible-investing.