Get Real! Individuals Prefer More Sustainable Investments

[What sustainable investors actually believe 1/5]

What happens when a pension fund gives its members a real vote?

Rob Bauer, Tobias Ruof, and Paul Smeets ran two field surveys in 2018 with a Dutch pension fund managing €20.8B in "Get Real! Individuals Prefer More Sustainable Investments".

The pension fund's board committed in advance to implement the outcome of a binding member vote on expanding SDG-based engagement, so the choice was consequential and the stated preferences credible.

Their main conclusions include:

• 67.9% of members vote to expand the fund's engagement from three to four SDGs, against 10.8% opposed and 21.2% with no opinion.
• Preferences, not performance beliefs, do the work: even among members who expect the more sustainable option to yield lower returns, 57.7% still choose it.
• Social preferences are the key driver, as a one-standard-deviation increase raises the likelihood of choosing four SDGs by 53.6%, robust to controls for return expectations and demographics.
• Support is unchanged whether three or four SDGs are presented as the default, and excluding confused or dropout respondents moves support only between 67.9% and 73.9%.
• The fund raised its company dialogues from 394 to 568 (+44%) and introduced SDG-based screening on roughly one third of assets, about €7.5B.
• In June 2020, mid-pandemic, 56.5% of the pension fund members back the intensified engagement, 77.1% back portfolio screening, and 98.8% of earlier supporters confirm their choice.

This article presents a specific example where a consequential binary vote elicits truthful beneficiary preferences and hands the board a mandate to double down on ESG.

If two thirds of beneficiaries knowingly accept a possible return sacrifice, acting on sustainability preferences is not a deviation from fiduciary duty or loyalty to clients but an expression of it.

As limitations, members voted on expanding an existing sustainable policy, not on introducing one, and response rates were 6.7% and 6.3% in a single Dutch pension fund.