Responsible Investors in Canada Part One: Four Distinct Segments and How to Reach Them
Responsible investing was once a niche practice that appealed to only a small subset of investors. Today, responsible investing is becoming more mainstream and attracting interest from a wider range of Canadians. As the market for these products grows, it’s becoming more important for asset managers and advisors to understand the diversity within this growing segment. Part One of this series will describe the attributes of responsible investors: who they are, what they want, and why. Part Two will examine the market size of RI focused investors and messaging to best connect with each segment.
The Environics Financial Services practice has used values research and other tools to segment Canadian investors into four distinct groups when it comes to their orientation to responsible investing (RI): the RI Experienced, RI Curious, RI Uninitiated, and RI Unaware. As more and more RI products come to market, asset managers can benefit from understanding how these groups differ, and how to tailor offerings and messages to each segment’s needs and outlooks.
Understanding the Four Segments of Responsible Investors
Who they are: This relatively small group of Canadians is composed mainly of Boomers, but 31% are Millennials. Some have deliberately built RI portfolios on their own. Others work with advisors but insist that RI products be included in their portfolio. These Canadians are more likely than others to have post-graduate education and to have household incomes of $100K+. RI Experienced investors have high levels of investment assets, describe their investment knowledge as “good” or “sophisticated,” enjoy monitoring and managing their investments, and have above-average risk tolerance. In short, these are engaged investors with strong values and a solid financial footing.
Why they’re interested in RI: These Canadians invest in RI because it has a positive impact on the world, it makes them feel good about the firms they’re invested in, and it incorporates their personal values into their investing activity. They’re also attracted to what they see as superior governance oversight in the RI space. The combination of their knowledge, values and strong financial position means that RI Experienced investors have the ability and confidence to explore their options and the financial freedom to try out new approaches they find credible.
How we can help: These Canadians were seeking out responsible assets well before the 2020 RI boom and they remain strongly committed to this category. Today, they are likely to be enthusiastic about new opportunities to expand this part of their portfolio as more products become available, including investments that align even more closely with their values. One area of potential interest may be impact investments: a niche but growing area.
Who they are: This segment skews young (a large proportion are under 35) and university-educated. Navigating their early adult years, the RI Curious have lots going on: new jobs, new relationships or families, and recently purchased homes. They are also in the starting phase of their investment journey. Whereas the RI Experienced tend to have extensive investment assets, the RI curious have different levels of holdings. RI Curious are slightly less risk tolerant than RI Experienced, and increasing the amount they save is an important focus of their financial lives. These Canadians are more likely to be tech enthusiasts and early adopters – at ease using online platforms for everyday banking, payments, money transfers, insurance, and investments.
Why they’re interested in RI: These are take-charge, can-do people who seek to consider their options carefully and rationally, and always look for a better way – so both the impact and the performance advantages of RI are likely to be persuasive for them. Like the RI Experienced, the RI Curious say they like the idea of having a positive impact on the world and incorporating their values into their investment activity. Climate change is an issue of acute concern for these younger investors; they see RI as one more way to reduce their carbon footprint. In a sense, the RI Curious are not just trying to do well; they’re also trying to do good. They’re at an important stage of their investing careers and many will be seeking to lay strong foundations for later life, including by increasing their savings and growing their nest egg as briskly as possible. As a result, the prospect of the higher returns that better-managed companies can deliver is a significant attraction.
How we can help: These Canadians’ values would suggest somewhat higher RI holdings than they actually report. It’s possible that some owned RI in the past and moved away from it, or that they’ve seriously considered RI but not yet moved ahead. It may also be that with the many competing priorities in their lives, these Canadians may not feel they have the time, money or support to explore and try investment products that seem new or unfamiliar. Some may only now be amassing large enough holdings to warrant transitioning from a branch advisor to someone more specialized who can help them invest in accordance with their values. As for what the RI Curious might be looking for when they do consider RIs, given their relatively early life stage they may be most interested in how RI performs relative to other investments. While they may eventually be interested in social or environmental impact, screening frameworks, or special investing themes, at the moment these investors may be most persuaded by the higher returns or security connected to firms with strong management and good governance.
Who they are: These Canadians have heard of RI or ESG investments but have not yet looked into responsible investments for their own portfolios. Boomers are overrepresented in this segment, as are Canadians with high income and high assets. The RI Uninitiated have confidence in their long-term financial health, hold a wide range of investments, and describe their investment knowledge as good to sophisticated. They enjoy monitoring and managing their investments and have a moderate risk tolerance. Although this segment has a higher than average concentration of people who say they manage their own investments, seven in ten of the RI Uninitiated are working with a financial advisor.
Why they’re interested in RI: Despite their assessment of their investment knowledge as good or sophisticated, the RI Uninitiated are not familiar with the RI category. From what these Canadians have gathered so far, however, they believe responsible investments present an opportunity to have a positive impact on the world.
How we can help: This group tends to be deferential to the recommendations of their advisors and may be waiting to see if their advisors suggest they look at them. Some advisors may assume that this older segment of Canadians wouldn’t be attracted to RI because of the costs or lack of interest in the social or environmental commitments associated with this area of investing. But this is a case where demographics alone offer insufficient guidance; values are also important. Boomers came of age during the idealistic 1960s, and many were influenced by movements like feminism and environmentalism. Egalitarian, eco-friendly values still resonate with large numbers of Canadian Boomers, and in other product and service categories these Canadians are often willing to pay more for offerings that are responsibly produced. A simple lack of awareness may be all that is standing between many RI Uninitiated investors and RI investments. Specifically, these Canadians may be unaware how much growth this area has experienced over time (particularly in the last year), or how diverse the category has become: Canadians now have over 140 RI options to choose from that cover a wide range of values and interests. RI Uninitiated Canadians express openness to Bitcoin and other cryptocurrencies, so there’s reason to believe they are open to new types of investment. Finding the right RI product for this older segment’s life stage and goals will require attention, but with new products launching every quarter, a good fit should be within reach.
Who they are: These Canadians have never heard of responsible investments. They represent a mix of income levels with more modest financial assets. Notably, no specific age group stands out in this category; the RI Unaware are at all life stages. They describe their financial fitness as neither great nor poor. These are the least confident and enthusiastic investors of the four segments: they are highly risk-averse, describe their investment knowledge as limited, and are less likely than others to work with a financial advisors. But while they’re more likely than average to say they manage their own investments, they are also more likely than others to report they hold no investments at all. Many also say managing their investments makes them feel anxious, and that they avoid this area of life as much as possible. In other words, it’s possible that not having an advisor doesn’t mean they’re confidently in control but that they don’t know how to begin to seek advice.
How we can help: As of now, these Canadians say they would not choose responsible investments – but they shouldn’t be discounted as prospective investors. While the RI Unaware are more likely to be investing on their own, just over half are working with a financial advisor. Advisors have opportunities to help these clients become more informed about RI. Given the strong risk-aversion of this segment, advisors working with RI Unaware investors should speak to the security and stability of these investments: the management and governance dimensions of RI can mean peace of mind for investors who prefer safer products. ESG integration may be the first stepping stone as these Canadians become comfortable with RI; an emphasis on the G (Governance) in ESG may be particularly resonant.
Canadians have a growing number of opportunities to express their values – not only their financial interests – through RI. Many have only become aware of the breadth and quality of these opportunities recently, and are now beginning to contemplate how to proceed. For most investors new to RI, the big questions are what does responsible investing really mean, how can they incorporate RI into their portfolio, and why should they choose RI over other options?
When it comes to the third consideration – the why – values research can offer important insights. The most enthusiastic RI investors believe they can have a positive impact on the world; incorporating RI into their portfolios makes them feel better about the kinds of companies they are invested in, and gives them a sense that their investments reinforce (instead of undermining) efforts they make in other areas of life – for example, reducing their carbon footprint through consumption and lifestyle choices.
Look for Part Two which will reveal the market size of each segment as well the key messaging that will best resonate with each group.
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