MICUS 2019 was my first Morningstar investment conference. It was HUGE, with lots interesting exhibits, speakers and attendees. I had a chance to chat with Ray Sin who, along with Ryan Murphy and Samantha Lamas, authored The True Faces of Sustainable Investing: Busting Industry Myths Around ESG. Additionally, I got a chance to play a virtual reality video game they designed… my first VR experience.
Compare their study with that of the Spectrem Group’s “white” paper, “Exile of Main Street.” (See Normalized Deception: Spectrem Group.) While Morningstar guarded against bias, the Spectrum Group asked leading questions. The Spectrum Group found “91 percent of retail investors indicated a preference for wealth maximization over political/social objectives.” Morningstar’s “My Sustainability Profile” found “72% of the United States population expressed at least a moderate interest in sustainable investing.” The desires for financial gain and sustainable investing were far from mutually exclusive.
Morningstar’s tool asks people to make repeated investing choices (like Tender swiping right), between two companies with different levels of sustainability and different levels of past returns. Participants were then assigned sustainability preference scores ranging from zero to 100, with zero indicating that the investor was guided entirely by returns, and 100 indicating that the person is guided entirely by sustainability.
About three times as many were guided entirely by sustainability than were guided entirely by returns. The largest group was right in the middle, guided equally by both. About 44% tilted toward sustainability, whereas only 28% titled more toward returns.
Despite reports that sustainability is a women’s issue, Morningstar found the small difference between the sexes “disappeared after controlling for income, age, political ideology, religiosity, risk tolerance, financial literacy, and other sociodemographic variables.” The statistical significance between baby boomers and millennials/gen Xers also disappeared after factoring sociodemographic variables.
Takeaway for financial professionals: Most of your clients are interested in sustainable investing, even if it may result in lower returns. (Other evidence at the conference found sustainability is more likely to increase returns.) Do not wait for your clients to raise the issue or you may lose them.
I took the “My Sustainability Profile” quiz. If I remember correct, I scored in the top 25% for sustainability. Therefore, I weigh sustainability a little higher than increased returns. I may have scored lower if I were not familiar with studies finding ESG and sustainability are more often value adding.
The VR experience was a little disorienting at first but at least I did not fall over and soon got used to it. Gamification is a great idea. I hope Morningstar will develop this further and offer it to school systems as part of financial literacy classes.
Of course, I was not the only one getting the VR experience. Here is a tweet from Danielle M. Burns (@Dmrmcb) of
@SonyaDreizler going through a similar experience. I bet Sonya was better at the controls.