Recent research has highlighted the considerable expansion and strong performance of sustainable investments, which often incorporate initiatives for diversity, equity and inclusion. Earlier Morningstar research showed that funds that emphasize ESG factors outperform those that do not value these issues.
The latest research shows that investors saving for retirement would support ESG factors if given the information, Morningstar said. The bias of investors to support funds that consider ESG and DEI issues “is useful given sustained and growing interest in issues of the representation and treatment of underprivileged groups in the United States, and the strong business case that companies prioritizing diversity and inclusion in their workforces have better performance.
“There also is considerable pressure on companies by investors to publicly disclose DEI data and promote objectives and transparency about equity through a record number of shareholder resolutions in the current season of corporate annual meetings,” Morningstar said.
“Investors may have an underlying belief that funds and asset managers with strong DEI and gender equality will also outperform in the future, or it may mean that investors have non-pecuniary goals and simply value DEI and gender equality above and beyond risk-adjusted returns,” the research said.
“Overall, we find that participants focus on high (historical) five-year returns, but nevertheless allocate a greater portion of their money to funds which have both high returns and DEI and gender equality scores. They allocate less to high performing funds that have low diversity-related metrics,” the research continued. “Investors showed a clear preference for personalizing portfolios based on DEI factors - both by penalizing funds without that information and selecting high-DEI scoring funds.”
Thompson noted, “Including DEI factors can align with an advisor's fiduciary responsibility” to provide all relevant information about the fund choices.