Younger investors tend to inject the idealism of youth into investment choices. While returns are still important, they tend to balance these returns with socially conscious decision-making. Holdings in companies may be eliminated or reduced based on carbon footprints, pollution records, human rights concerns, a lack of diversity, and a number of other societal transgressions. Meanwhile, socially responsible companies are rewarded.
On the other hand, older investors see retirement approaching rapidly and are more focused on returns than the companies in which they invest. They may be turned off by blatant abuses, but don't place societal impact high on their priority list. However, findings by the Spectrem Group suggest that attitudes may be changing.
In a recent study, investors were tasked with ranking the importance of different issues that they considered when making investment choices from 0 to 100 (most important). Among the socially conscious choices were "avoiding companies whose practices hamper human rights, such as companies that don't have adequate pay," which ranked at 70.06, and "avoiding companies that harm and damage the environment," which ranked at 68.79. Similar results were given to companies making products harmful to the public (67.24) and those who did not promote diversity (56.82).
The more remarkable aspect of this study was that there were few differences in the answers with respect to wealth, gender or age. Further analysis shows that 25% of investors under 35 years of age have between one quarter and three-quarters of their investment holdings with companies considered socially responsible. In the age group of 55 to 64, only 5% to 10% of investors engage in that level of socially conscious investing.
Why is there a discrepancy in those two results? There really isn't one, as the social consciousness of the older investor is a new trend that will be implemented over time. As the managing director of Spectrem, Cathy McBreen, puts it, "The older clients are more open to investing in socially responsible firms but don't know how to go about it."
It’s also possible that the definition of socially conscious will be difficult to nail down between the generations. For example, people tend to agree that companies engaging in human rights violations should be avoided (phrased that way, the results would probably be near 100%), but they may not consider adequate pay as a human rights abuse, nor would they necessarily agree on the definition of adequate pay.
Nevertheless, the interest seems to be real and that is a good sign. McBreen notes that Spectrem has done similar research in the past, and the most recent study represents the first time that older investors are interested in socially conscious, or "impact," investing. She speculates that older investors realize that it is possible to see returns with socially conscious companies, assuming that you pick ones that are properly structured and run competently — in other words, the social impact does not overrule a reasonable business model.
Larger, mainstream companies are realizing the benefits of social impacts, are adjusting their policies accordingly, and trumpeting these changes — as they must in order to change minds. The Conscious Consumer Spending Index, a report from the marketing group, Good.Must.Grow. reveals that nearly one in three Americans can’t even name one socially responsible company, and those who do, fall back on the same well-known list: TOMS Shoes, Whole Foods Market, Starbucks, Ben & Jerry's, and similarly well-publicized socially responsible companies.
Companies of America, it's up to you. Join in the socially conscious movement and let investors know about your positive social impacts, or risk being left behind. The times, they really are a-changin'.