The U.S. has the lowest adoption rate of sustainable investing among 10 major markets at 12% of investors, compared with 39% globally, according to the latest edition of the UBS Investor Watch report. China, Brazil, the United Arab Emirates and Italy lead the charge, with 60%, 53%, 53% and 51% of investors, respectively, reporting sustainable investment holdings in their portfolios.
The study defined adopters of sustainable investments as those having at least 1% of assets allocated to such investments. Despite low adoption, American sustainable investors had the highest average allocation, with 49% of their portfolio assets dedicated to sustainable investments, compared with the average global allocation of 36%.
U.S. investors in the study expected sustainable investing to grow to 19% over the next five years, up by 58% from the current low level. In fact, 32% of American investors thought sustainable investing would become the “new normal” in 10 years. The study showed that few investors expected to sacrifice returns when investing sustainably because they viewed sustainable companies as more responsible, better managed and more forward-thinking — thus, good investments.
In fact, 51% of U.S. investors believed returns from sustainable investments would match those of traditional investments, compared with 50% of investors globally, while 19% of Americans expected sustainable investments to outperform traditional investments. “Investors see sustainable investing as the way of the future,” Paula Polito, global client strategy officer at UBS Global Wealth Management, said in a statement. “Many of the investors surveyed believe that sustainable investments are wise investments and see no need to compromise their personal values for financial returns.”
UBS during the summer surveyed some 5,300 investors with at least $1 million in investable assets in Brazil, China, Germany, Hong Kong, Italy, Singapore, Switzerland, the UAE, the U.K. and the U.S. The U.S. sample comprised 1,711 investors, including 472 with at least $5 million in investable assets.
The survey results showed that younger investors and those with the greatest wealth were the leading adopters of sustainable investing, both globally and in the U.S. Seventy-two percent American millennials reported investing sustainably, compared with a mere 6% of investors age 65 and older. Among those with at least $50 million in investable assets, 40% invested sustainably, compared with 8% of investors who have $1 million to $2 million in investable assets.
Why are non-adopters so prevalent in the U.S.? The study found that among this group, 85% were happy with their existing investment approach. Seventy-nine percent said quantifying impact was a major barrier to sustainable investing.
Confusion about terminology compounds the issue. According to the survey, two-thirds of U.S. investors complained that the language of sustainable investing was perplexing, and only 23% were very familiar with the term itself. Not only that, U.S. investors made little distinction among the three major sustainable investment approaches:
- Exclusion: Of companies or industries from portfolios where they are not aligned with an investor’s values
- Integration: Of environmental, social and corporate governance factors into traditional investment processes, seeking to improve portfolio risk and return
- Impact investing: The intention being to generate measurable environmental and social impact alongside a financial return
UBS noted that amidst this confusion, advisors have an important role to play. Sustainable investors in the survey listed their financial advisors as the top influencers in their decision to invest sustainably, followed by family and friends. “The opportunity for growth in the U.S. is vast, with young people and wealthy investors leading the way and momentum growing,” Andrew Lee, head of sustainable and impact investing in the Americas at UBS Global Wealth Management’s chief investment office, said in the statement.