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One of the most common refrains I hear in the field of responsible and impact investing is how it is the younger gens and women who are the people most interested in aligning their investments with their values. That claim never sat well with me because it didn’t match my experience. While talking to clients at Kind Wealth, or in my previous experience raising funds for Origin Capital, I haven’t observed any differences in interest levels along gender or age lines.
Thankfully now there is some good data to support this. New research by behavioral scientists Ray Sin, Ryan Murphy, and Sam Lamas of Morningstar revealed that nearly 2/3 of people they measured from a nationally representative US study showed at least moderate (or stronger) preferences for ESG investing. Moreover, the interest was widespread and not isolated to any particular subgroup.
Morningstar hypothesizes that the reason their results differ from many prior industry surveys (that show significant gender and age differences) is that those surveys rely on the "stated preference" methodology whereas Morningstar took a "revealed preference" approach.
Simply put, the "stated preference" methodology refers to an approach where researchers explicitly ask people what they prefer. Meanwhile, the “revealed preference” methodology - pioneered by economist Paul Samuelson - provides survey respondents with a series of hypothetical choices to make. The researchers then analyze what those choices reveal about the preferences of survey respondents.
Morningstar ESG Study
In this case, Morningstar gave survey responders a series of investment choices to make; having to decide between two possible stock investments, each with different ESG scores and expected returns.
The benefit of using the revealed preference methodology is that it does not require respondents to explicitly state their preferences. This helps mitigate behavioural biases that can compromise survey results. For instance, respondents may not want to admit their preferences when questions concern illegal, taboo, or socially sensitive subjects.
Therefore, it may be the case that previous surveys on this subject have misreported that women and millennials are more interested in sustainable investing because older men are less comfortable or less able to explicitly state their preferences.
While the Morningstar study may not be the final word on this topic, at the very least it signals we haven't got it all figured out yet. In the meantime, let's stop asserting so definitively that women and millennials are the only ones who care about the impact of their investments.
I know this is a nascent industry, but let's stand tall and stop feeding the narrative that our market is smaller than it is. Besides, even if older men aren't quite there yet, it won't be long until they are. The tide is turning and one can only drag their heels so long before they get swept away.