‘ESG assets are only set to grow’: Investopedia Editor in Chief

Caleb Silver, Editor in Chief of Investopedia, joins Yahoo Finance to break down Investopedia’s new ESG report highlighting the soaring demand for ESG investments.

Video transcript

ALEXIS CHRISTOFOROUS: Well, investing in companies with a commitment to environmental, social, and governance issues, otherwise known as ESG, continues to gain in popularity, especially among young investors-- no big surprise there. But while ESG investors want to invest alongside their values, some of the choices they're making may come as a surprise. Those are the findings from a new survey by Investopedia.

And joining us now is Investopedia's editor-in-chief Caleb Silver. Caleb, always good to have you here. So before we really dig into some of the findings, just paint the overall picture for us. What has interest been like in these ESG products? What have inflows been like over the past year or two?

CALEB SILVER: Yeah, so good to be with you, Alexis. And interest is enormous, as have inflows. Money going into ESG-related products in 2020 was up 140%. I think we had $203 billion going into the sector, whether it was ETFs, where about a third of that money went, individual stocks or index funds, money poured in. And the returns are there.

It used to be that everybody was a little bit scared about ESG because they weren't sure they'd see returns. Returns are there in a big way. And ESG assets are only set to grow. Bloomberg and others have calculated that they may top $53 trillion by 2025. That's almost half of the entire investable market right now. So interest is huge. And it's only set to grow.

KRISTIN MYERS: All right, so Caleb, let's just get to some of those companies that investors are looking at to be in line with ESG. I'm surprised to see that a third of investors actually believe Tesla performs well by ESG standards. What else is on the list? And what were some of the biggest surprises to you?

CALEB SILVER: Yeah, well, great question. And Tesla was chosen by about a third of our survey readers. We did this along with treehugger.com, our sister site at Dotdash. And what they were telling us is about a third of the companies we listed, we gave them about 50 companies, some that ranked very highly in ESG scores and some that don't. They chose Tesla as the number one. A third of them did.

What's interesting about Tesla is it doesn't score that well, if you look at MSCIs, ESG Ratings, or Sustainalytics-- pick your provider. It doesn't score very well because ESG is environmental-- yes, an electric vehicle maker is more environmental than a fossil fuel automaker-- social and governance issues. And while Tesla ranks very highly on the E part of that, the S and G, they don't rank that highly. They're about right in the middle of the pack.

Apple was the second choice there. Again, very popular stock, obviously, like Tesla. Again, ranks right in the middle, average in terms of its ESG scores. And it's not that they're not good to their employees. I think Apple's known for a good employee culture. It's what they do with their byproducts of the iPods, the iPhones, the laptops that they make. The waste disposal was a big key component.

We listed a bunch of other stocks there, including some energy stocks, just to see how our readers and the TreeHugger readers would react. Many of them chose some of those energy stocks as ranking very high in ESG as well. So that tells us and they told us that they're kind of winging it when it comes to research and associating with brand versus actually putting the stocks that they're interested in into an ESG screener.

ALEXIS CHRISTOFOROUS: Very interesting there, Caleb, but what are they telling you in terms of what matters most to them? I mean, are they looking at companies that are going to return a dividend? Are they looking at long-term good returns? Are they looking for things that are more in the short-term? What are they telling you?

CALEB SILVER: Great question. Well, I think by and large, the answer is returns, returns, returns, and especially returns over the long term. We actually broke this down by age bracket to see which investors at different age groups care more about different parts of the returns. And the younger investors are much more interested in investing aligned with their values. They want to invest their dollars where their ethics are. So that's why they choose ESG investments.

Older investors are looking for returns, whether that's retirement income or just to generate income over the long term. So returns are the number one thing, but a lot of them, a lot of those investors at both TreeHugger and Investopedia want to invest where their heart is, but they also think that ESG investing is going to be the wave of the future. And if we believe the stats that, you know, $53 trillion will be invested into that theme in the next three or four years, they're going to be right about that. But it's really, you know, the returns that they want, but they also want to do right with their money.

KRISTIN MYERS: So then, Caleb, I know that you mentioned that so many of those investors, frankly, are just winging it. And again, I think some of the results here are really support that notion. Where should investors, you know, that are at home watching right now, and they're saying, hm, you know what? I do want to start investing in line with some of my social values. How best should they go about that?

CALEB SILVER: Great question. There are so many resources out there. And we're in the financial services industry and the media. We know how much effort that a lot of these money managers and institutions put into ESG and ESG-related themes and ESG education. It's not breaking through to the end investor, based on our survey results.

So there's tons of information out there. I mentioned MSCI. Morningstar has a good screener for that. Sustainalytics has a great screener for ESG investing. Yahoo Finance has places you can find ESG-related themes and ETFs and index funds. So do we at Investopedia. But investors generally are making the brand association with the companies that they believe are most closely tied to ESG-related issues.

And they're buying those stocks based on that, versus putting them up in the screener and saying, how friendly is Tesla to its employees? How good is Apple at disposing of its solid waste and its electronic waste? So there are plenty of ways to find out where to put your money and which companies really align with what you want. It's just that it's not breaking through to the end investor, which is a huge opportunity for us, also a huge opportunity for the investment management industry.

ALEXIS CHRISTOFOROUS: All right, great insights there as always. Caleb Silver, editor-in-chief of Investopedia, thanks for being with us.