In 2023, a team of researchers at Stanford Graduate School of Business posited that investors might view progress on environmental, social, and governance (ESG) issues as a luxury: something worth pursuing in boom times but not in lean ones.
Turns out they were right.
For three years in a row, David Larcker, a professor emeritus of accounting; Amit Seru, a professor of finance; and Brian Tayan, MBA '03, a researcher at the Stanford GSB's Corporate Governance Research Initiative, have surveyed American retail investors' attitudes toward environmental, social, and governance issues. (The 2024 survey was conducted by the Hoover Institution Working Group on Corporate Governance and the Rock Center for Corporate Governance at Stanford University.)
The first survey, conducted in 2022, revealed a striking generation gap, with Millennial and Gen Z investors far more eager than their Gen X and Baby Boomer counterparts to see fund managers address environmental and social issues - and far more willing to sacrifice returns in the process.
However, young investors' zeal for ESG began to wane in 2023. In the latest survey, conducted in the fall of 2024, it fell off a cliff. In 2022, for example, 44% of young investors thought it was "extremely important" for investment companies to use their size and voting power to influence the environmental priorities of their portfolio companies. The following year, 27% felt that way. This year? A mere 11%.
When asked if they wanted investment companies to throw their weight behind improving social and governance practices, the decline was even starker: from 47% to 10% and 46% to 7%, respectively. (All three annual surveys indicated that investors generally care less about the G in ESG.)
The recent loss of enthusiasm for ESG investing was clear no matter how the researchers approached the question. Far fewer young investors said they were concerned about ESG issues in 2024 than in prior years, for instance. And they were much less inclined to want fund managers to advocate for better ESG practices if it meant losing money.
Only 10% of young investors said they'd be willing to lose more than 10% of their retirement savings to bring about environmental improvements like reducing carbon emissions and boosting renewable energy use - down from 33% in 2022. The drop was equally steep when it came to support for social issues such as eliminating the gender wage gap and providing employee benefits like parental leave and on-site daycare.
Interestingly, the loss of appetite for ESG priorities crossed party lines. As in previous years, Democrats tended to be more concerned about environmental and social issues than Republicans and independents. But like young investors, only 10% of Democrats now said that they were willing to lose 10% or more of their retirement savings to support such issues, down from 20% last year.
"It might be the case that those groups who previously were most in favor are starting to sour on the cost of ESG either because they do not think the hoped-for changes will materialize or that the costs of achieving societal change through business activities are going to be too high relative to the results," Tayan says.
That sense of uncertainty was evident elsewhere as well. In 2022, young investors were much more optimistic about future returns than older investors and much more confident about their knowledge of the markets. By 2024, however, most of that optimism and confidence had evaporated. Three years ago, 78% of young investors described themselves as extremely or very knowledgeable about the stock market versus 20% of older investors. This year, only 18% of young investors held themselves in such high regard.
The team also identified an intergenerational trend: Regardless of age, this year's survey respondents were less interested in having fund managers take their views into account when voting on environmental and social issues - a clear sign that investors were prioritizing profit over other preferences.
"What they're basically saying is, 'We really want you to increase the value of our holdings,' " says Larcker, a director of the Corporate Governance Research Initiative and senior faculty of the Rock Center for Corporate Governance.