What new investment trends are saying about the value of sustainability.
We’ve been talking about sustainability in the bedding industry for a long time. From “eco-friendly” components to fully certified organic mattresses, there are plenty of different types of environmentally-conscious sleep products available today. But many people still consider this to be a niche category and have debated its true value—sure, some consumers may say they’re interested, but are they really willing to pay for it? New research about “sustainable investing” is offering important context for these questions. Rather than focusing solely on monetary value, sustainable or “ESG” investing also takes into account the company or fund’s approach to environmentalism, social issues and corporate governance standards as well. Not only has the interest in this type of investing grown over the years—it has also held steady amidst the financial crisis of the pandemic. And this points to a meaningful shift in what both the market and consumers really value. Sustainability is no longer seen as a luxury, but a necessity for all.
The interest in sustainable investing has grown significantly over the years. While investors have long indicated that social and environmental concerns were important to them—2020 was the year that they really began to back up this interest with their dollars. According to Gallup, investors in February of this year noted that they were “most likely” to invest in funds focused on reducing pollution (81%), promoting responsible corporate governance (78%), promoting worker rights (74%) and promoting racial equality (72%). In the first six months of this year, more than $15 billion has already been dedicated to sustainable investments, according to research provider ETF Flows.
“The dam has broken,” said Dave Nadig, ETF Flows’ chief investment officer and director of research, told Marketwatch. “This is the year it came out of the backroom and became a reality.”
Of course, with the onset of the pandemic and the subsequent financial crisis, many worried that this growing interest in sustainability would be pushed to the back-burner. But it turned out that was not the case at all.
In mid-May, Wells Fargo and Gallup polled US investors and found that the pandemic-driven stock market crash in March did not have a significant negative impact on the interest in sustainable investing. In fact, the number of US investors who said they were “very or somewhat interested” in sustainable investing funds only dropped from 52% in mid-February to 46% in mid-May. This is particularly notable because this decrease was negligible compared to the sharp decline of the market as a whole—which went from soaring highs in early February to catastrophic lows in March, and only tentative rebounds in the months following.
The resiliency of sustainable investing amidst the economic crisis marks an important shift in how we view social, political and environmental issues. “A lot of the critical commentary aimed at ESG investing in recent years has been this belief that it’s a luxury good,” explained NPR correspondent Chris Farrell on Marketplace recently. “And people typically cut back on luxury goods when times are tough. Well, the economists conclude that since investors have not only stuck with but embraced sustainable investing during the major crisis, it suggests that they view sustainability as a necessity, rather than a luxury good.”
But it’s not just that some people are now prioritizing social good over maximizing their financial returns. It turns out that companies and funds with high ESG ratings are not as risky an investment as they were once seen. According to the February Gallup poll, the majority of investors (69%) believe that sustainable investing funds generally match the market average, while just 24% believe they perform worse.
There’s plenty of experts who agree as well. Analysis from Morgan Stanley, Bank of America, Deutsche Bank, Harvard Business School, Oxford, MSCI, TIAA-CREF and UBS have all concluded that taking into account the environmental, social and governance insights when making investment decisions does not sacrifice performance. And a number of leading investment management companies have found that sustainable investments have actually outperformed traditional investments in 2020.
Put simply: there’s very little difference in returns whether you are investing for money alone or investing for money and values.
But looking ahead to the future, there may be even more compelling evidence for why companies with more sustainable practices are the more responsible investment choice. According to a new survey from the deVere Group, an independent financial advisory firm: more than half of investors surveyed actually consider sustainable investments to be “safe havens.” Meaning, they are the less risky choice. This is, in part, because many believe that companies committed to sustainability are better prepared for future challenges.
So Why Should Any Of This Matter To You?
Looking at investment data is a helpful way to forecast for the future. More than simply driving money into certain categories, these trends also reflect consumer interests. Sustainable investing is now seen as less risky because these companies are better aligned with the values that are driving consumer purchasing decisions.
In the past, it had been assumed that consumer interest in sustainability would be abandoned in times of economic hardship. But this financial crisis is unlike anything we’ve ever seen before. It’s putting into stark focus the severity of many underlying social issues—from wealth inequality and unsafe labor practices to the disproportionate impact of climate change on low-income and communities of color.
As the focus on these issues continues to grow more generally, the interest in companies that promote more socially conscious practices are expected to as well. According to a new Retail & Sustainability Survey by CGS, an enterprise technology company, 51% of consumers in the US and the UK reported that sustainability played an important role in their retail decisions. The company surveyed 2,000 consumers and found that 56% of US shoppers said they would pay more for a sustainable option—with a quarter of all respondents saying they would pay up to 25% more. What may be more important to some brands is the flipside of that equation: 30% reported that they would not purchase from a brand that didn’t use sustainable practices.
And yet despite this demand, many companies are still lacking when it comes to communicating their sustainability commitment to consumers. The CGS survey found that 50% of respondents believe brands are not demonstrating their practices—and 27% believe that even though some brands are, they could still be doing more. Beyond that, there is also a lot of confusion around what sustainability really means. According to the survey, 24% of consumers defined sustainability as being “eco-friendly and reducing waste,” while 22% defined it as “comprising ethical practices.”
As consumers grow more interested in social and environmental issues, they are becoming more discerning shoppers. In order to really engage with consumers, it’s important to be as clear and specific as possible in your marketing and communication—and avoid parading social good and sustainability initiatives in a disingenuous way. Third-party accreditations and detailed labeling programs can help brands stand out amongst any “green-washing” and give greater credibility to marketing claims. As can more detailed messaging about specific sustainability efforts. Which companies have pledged to off-set or reduce their greenhouse gas emissions? Which companies have transitioned to using renewable energy? Which companies are dedicated to fostering racial equity amongst their team? Being thoughtful about what you do, how you do it and how you communicate it will reflect well on your company. It will positively impact how customers and investors alike perceive your business—and its ability to succeed in the long-term.
Whether you are looking at investors or consumers, one thing is clear: sustainability has become increasingly important. Rather than seeing environmental considerations, positive labor practices and corporate governance as simply morally good, it’s important to remember that they are also good for business. And both manufacturers and retailers should keep that in mind as they prepare for the future.
This story originally appeared in eNews. Click here to get Sleep Retailer eNews delivered straight to your inbox.