More and more, larger asset-management firms have been using their shareholder voting power to sway companies into adopting environmental, social, and governance (ESG) initiatives, but are they really following the will of their clients? An article in The Wall Street Journal takes a look at a recent research survey conducted by Stanford University and found that support for ESG varies widely by age and wealth.
The least likely to support ESG initiatives were investors 58 and older, while the most likely to support were investors between the ages of 18 and 41. Younger investors were more willing to lose 11% to 15% of their savings for retirement in order to push companies towards more gender and racial diversities, while a mere 3% of older investors were willing to lose that amount for the same goal. In fact, two-thirds of older investors weren’t willing to lose any amount of their money for any type of diversity initiative, the article details.
Given the wide range of opinions on ESG objectives, it is a challenge for investment managers to fully reflect all of their clients’ views on the issues. Managers could decide to split their votes based on individual clients’ wishes; for example, giving 70% of their shares to one particular initiative while devoting 30% of their shares against it. And managers also need to help their clients fully understand what they are risking to support an ESG agenda. “Fund managers need to acknowledge that there is likely to be some trade-off between ESG and financial returns and that trade-off may matter to individual investors,” Professor David Larcker of Stanford’s Graduate School of Business and one of the survey’s researchers, told The Journal.