John Taylor, Professor of Economics at Stanford University and developer of the "Taylor Rule" for setting interest rates | Stanford University
John Taylor, Professor of Economics at Stanford University and developer of the "Taylor Rule" for setting interest rates | Stanford University
In recent years, interest in sustainable investing among young investors has significantly declined, according to a survey conducted by researchers at Stanford Graduate School of Business. The study, led by David Larcker, Amit Seru, and Brian Tayan, revealed a notable decrease in enthusiasm for environmental, social, and governance (ESG) issues among Millennial and Gen Z investors.
The research team has been surveying American retail investors' attitudes toward ESG issues for three consecutive years. In 2022, the initial survey showed that younger generations were more eager than older ones to see fund managers address these issues and were willing to sacrifice returns for progress. However, this zeal began to diminish in 2023 and plummeted further in the fall of 2024.
In 2022, 44% of young investors considered it "extremely important" for investment companies to influence environmental priorities. By 2024, only 11% felt the same way. A similar decline was observed regarding social and governance practices: from 47% to 10% and from 46% to 7%, respectively.
Tayan noted that those previously most supportive of ESG might be reconsidering due to doubts about achieving societal change through business activities or concerns over costs relative to results. This sentiment was reflected across political lines as well. While Democrats have historically shown more concern for ESG issues than Republicans or independents, only 10% now expressed willingness to lose significant retirement savings for such causes.
Larcker pointed out that the economic landscape's changes could explain these shifts in sentiment. Rising interest rates and inflation have made young investors more pessimistic about the economy and less inclined to prioritize ESG goals over financial returns.
Seru suggested that declining investor support might indicate a need for government-led initiatives instead of relying solely on the investment sector. He advocated using subsidies and taxes to maintain momentum on essential ESG priorities.
The future of ESG investing may depend on economic conditions and whether its fundamental promises are realized. If economic confidence rebounds, support for ESG could follow suit. However, if business investments fail as efficient conduits for environmental or social change beyond commerce's normal scope, support may continue dwindling.
Researchers remain interested in collaborating with investment firms to examine if survey attitudes align with retail investors' portfolios and whether specific ESG initiatives are effective.
Alerts Sign-up