3 reasons why ESG (still) matters

and why ESG-inclined consumers are worth paying attention to.

Over the past few years, there have been conflicting reports about investors’ appetite for responsible investments. The same goes for companies and investment products that emphasize performance on ESG issues. So if you’re confused about whether RI and ESG are gaining or losing ground, you’re not alone.

The truth is, the trends are mixed – and the story in Canada is quite different from the story south of the border.

Globally, there was a net outflow from ESG funds in early 2023, according to analysis from Morningstar. This global trend is being driven in part by the US, where increasingly vocal political opposition to ESG has – along with regulatory changes and performance concerns – led to notable outflows from ESG funds. In Canada, the landscape is quite different. There are good reasons for Canadian fund manufacturers to continue to invest time, money, and effort in developing and promoting their ESG offerings. Here are three:

1. Despite noisy debates, demand persists.

Just this month, Morningstar’s latest Canadian Sustainable Funds Landscape confirmed that Canadian sustainable funds saw net inflows in 2023 (albeit at a slower pace than in 2021 and 2022) and that 2023 also saw a rebound in performance, with over 30% of sustainable funds ranking in the top quartile of their respective peer groups.

2. Canadian investors have been clear that they want to continue to invest in ESG.

Last month, the Responsible Investment Association’s Investor Opinion Study showed that two-thirds of Canadian investors are interested in RI. It’s notable that this widespread interest is evident even though less than one-third of investors say their financial advisor has raised the topic of RI with them.

3. The demographics and values of ESG-inclined investors should be appealing to investment brands.

A quick dive into the Environics Social Values database can give us a closer look at the characteristics of Canadians who are already invested – or interested in investing – in RI/ESG funds. And the data suggests that these investors are very desirable customers.

- Demographically, these investors are generally well-educated, employed full-time, and financially stable.
- From a values perspective, they are willing to put money into things they believe in – and even take pride in expressing themselves through their choices as consumers and investors.
- They are less risk-averse than average, and are willing to bear the ups and downs of the market.
- Scoring high on the value Consumption Evangelism, RI-inclined investors are natural advocates for causes and companies they believe in. So if you win these customers over and impress them, they are very likely to share positive brand stories with their friends.

In short, ESG investors in Canada are a large group of generally affluent, smart, and engaged investors. They are in it for the long haul and when they have a positive experience, they are likely to spread the word.

So… how can you win over this very valuable customer segment? The answer requires a second dive into the Social Values database.

I’ll save that for next time.