It's a common misconception that sustainable investing among retail investors is confined to a niche market of mostly millennials and women seeking to put their money in companies they feel do the right thing.

But a new study from Morningstar US reveals the true face of sustainable investing is much more diverse. It also suggests that even if people are not interested in sustainable investing they will lie and say they are because they fear being marked down by their peers.

Women have a slightly stronger preference for sustainable investing than men but the difference between the weighted averages is small, according to Morningstar’s research. In this case, the mean for women is 59.08 whereas the mean for men is 53.53.

However, this small difference disappears when you account other keys factors such as income, age, political ideology, religiosity, risk tolerance, financial literacy, and other sociodemographic variables, report authors Rau Sin, Ryan Murphy and Samantha Lamas found.

The results similarly poured cold water on the idea that different generations – millennials (currently aged 25-39), generation X (40-54), and baby boomers (55-75) - have substantially different preferences for sustainable investing.

"The average preference score for millennials and gen X were statistically equivalent, and while millennials, on average, showed a slightly stronger preference for sustainable investing when compared to baby boomers, the statistical significance between baby boomers and millennials didn’t exist after including sociodemographic variables," the authors say.

The mean for millennials is 60.21; the mean for gen X is 57.26; and the mean for baby boomers is 51.96.

Bruce Smith, principal and portfolio manager of Alphinity's Sustainable Share Fund, says anecdotally that his fund has achieved broad appeal across demographics.

And the stereotype that men are less concerned about the environment or society is wrong, Smith says.

"Wanting to know that your capital is not doing damage to others and the environment is not something I think is determined by age or gender," he says.

Survey design flaws: tell us what you really think

Morningstar researchers said the way research is conducted has partially led to the misconception that women and millennials are the most interested in sustainable investing.

Part of this due to the way survey questions are formulated, say Sin, Murphy and Lamas.
Interest in sustainable investing is sometimes measured with survey questions that go something like, “on a scale of one to five, how interested are you in sustainable investing?”.

However, this kind of question can create social desirability bias—the tendency for people to respond in a way they think will be viewed favourably by others.

Solar Farm Sustainable Investing

"For example, people may not be interested in sustainable investing, but to avoid being judged negatively by others they will respond that they are," they say.

To prevent potential biases that emerge from traditional survey design, Sin, Murphy and Lamas have developed a new tool to reveal a person’s sustainability preferences by asking them to make choices between investment options with carefully constructed trade-offs.

"For example, one choice asks users to allocate a hypothetical $1,000 between Monster Beverage and Disney: Monster has higher returns but a lower sustainability rating, while Disney has lower returns but a higher sustainability rating," they say.

Once the allocation decisions are made, the tool converts the results into a sustainability preference score ranging from zero to 100.

Growth for ESG investing

Ultimately, Morningstar researchers say the results suggest there may be a broader appetite for sustainable investing among American investors.

In fact, almost three quarters of the US population - about 72 per cent - expressed at least a moderate interest in sustainable investing.

"It’s time to update the narrative that ESG - the use of environmental, social, and governance factors to assess investing alternatives - is not mainstream. Our research finds that most investors, across ages and genders, have clear preferences for ESG investment products," Sin, Murphy and Lamas say.