Once upon an ESG demand pool

30 April 2020
Think it’s only millennials who care about responsible investment? Think again. Ryan Medlock looks at what the wider demand for environmental, social and governance (ESG) factors is really like.

Once upon a time, we were told that it’s just the millennials who were interested in responsible investment. Tech-savvy folk who enjoy avocado on toast washed down with a fine flat white. 

Well, take it from me as someone who just makes it into the age bracket of a millennial, that’s true - to an extent. This is very much a demographic for which responsible investment is a natural fit. That’s important from an inter-generational wealth transfer aspect; as a growing portion of the population are interested in this, by offering a service and a proposition that includes responsible investment, you’re effectively future-proofing your business.

But what if I told you that this demand pool story goes much deeper than just millennials?

Results of our customer research

We recently captured the views of over 5,500 existing Royal London customers to gauge their views on responsible investment.

As part of the research, we asked a variety of questions on different responsible investment themes. One particular area of focus was to establish the importance of responsible behaviour vs responsible investing, and the results were quite compelling as shown in the chart below.

 Source: Royal London, 2019.

The ‘X’ axis shows the extent to which those customers surveyed say they are socially responsible. I think it’s quite clear from these results that responsibility and sustainability is an increasingly important aspect of day-to-day life and decision making – that’s represented by this large pool of groups situated on the right hand side of the chart.

The ‘Y’ axis shows the extent to which those customers stated that investing responsibly is the most important consideration. I think it’s quite clear that by looking at those results in isolation, making responsible and sustainable investment decisions remains less important than other aspects such as the perceived investment return and risk for certain groups of individuals.

The rise of the new demand pool

The story, however, takes a twist when we focus on the top right quadrant. If we take a closer look,  we can see a new demand pool emerging.

These are people who place importance on behaving responsibly on a day-to-day basis and believe that investing responsibly is an important consideration.

When you look at the detail in the plot, it’s pretty clear that this isn’t just about the younger generations. It’s also about females as a demographic, and interestingly, those individuals who have yet to engage with and enter the advised market.

How we go about engaging this demand pool and ensuring that the individuals within it ultimately enter the advised market at some point in the future could be a defining moment for many of us.

Future-proofing your business

Embedding responsible investment is not just about finding new customers or appealing to a wider portion of the population - it’s also about continuing to understand the evolving needs of your existing customers.

As regulatory change and society places more emphasis on issues such as fair board structure, employee relations, diversity, equal pay and of course the climate crisis, this demand is only going to grow stronger.

Our research revealed that eight in 10 customers said they’d prefer to choose a company that’s acting responsibly over one that isn’t - and when you put it like that, it’s hard to disagree.

As an industry, we can collectively create a lot of positive change in this area.

As an industry, we can collectively create a lot of positive change in this area, and by offering a service and proposition that takes different responsible investment approaches into account, we can collectively ensure that this story gets a happy ending.

 

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About the author

Ryan Medlock

Senior Investment Development & Technical Manager

Ryan’s journey with Royal London began back in 2008 after starting his career in compliance with Norwich Union. As an Investment Proposition Manager, Ryan contributed to the growth and development of Royal London’s Governed Range before moving to Aberdeen Standard Investments for a stint in the Strategic Client’s relationship team. Ryan returned to Royal London in 2018 with a focus on exploring adviser angles amongst complex regulation and investment themes. Ryan is involved in developing adviser facing content, presenting, writing articles and commenting for the press. Ryan holds the IMC qualification. Ryan is particularly proud of the fact that he finished 952nd in the 2008/09 edition of Fantasy Premier League.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.