May 25, 2023

ESG: Are Investors Willing to Pay for Social Responsibility?

One of the big open questions about corporate ESG initiatives is whether investors are really willing to forego returns in order to achieve ESG objectives.  According to a recent study, the answer seems to be that some are – at least to a point. However, it also indicates that a large percentage of investors aren’t willing to forgo a dime of returns to achieve those objectives. Here’s an excerpt from a ProMarket blog by one of the study’s authors:

Our empirical analysis provides the following main results. First, we find that when making investment decisions, individuals are indeed willing to forgo some returns in order to promote social interests: The average willingness to pay in our experiment varies (depending on the particular social cause) between $176 and $253 out of returns of $1,000 on a $10,000 investment (corresponding to returns of between 1.76% and 2.53%, out of a potential total return of 10%).

More importantly, whereas most investors are willing to forgo gains to promote social interests, a substantial proportion of investors (about 32%) are unwilling to forgo even a trivial amount ($10 out of $1,000, or a 0.1% return out of the 10% potential return) to advance any of the four social goals we presented to them through their investment decisions. These individuals have a strong preference to maximize profits over social goals, even where the cost to them of furthering social goals is extremely small.

Not surprisingly, the study found that the divide between investors on this issue parallels the nation’s political divisions. Democrats, women and higher income investors are more willing to forego returns to promote social causes, while Republicans & independents, men and lower income investors are less willing to do so.

John Jenkins