Sacrifice pension benefits if it's sustainable?
August 7, 2014
Nearly half of the pension fund participants would settle for slightly lower returns as long as the investments are socially responsible in their eyes. This applies particularly to women, according to a study by TIAS/Tilburg University.
Image: © Nationale Beeldbank
Pension funds spend billions of euros for their clients without really knowing much about their social values and preferences. This led TIAS/Tilburg University Professor Rachel Pownall and researcher Arian Borgers to ask more than 1,000 Dutch households about their preferences in terms of investments by their pension funds. The study found that nearly half of the respondents prefer socially responsible investing, even if they theoretically have to sacrifice a (small) portion of their pension.
What is socially responsible?
The study shows that the Dutch are particularly averse to investing in arms companies and companies that systematically violate human rights. Companies in the alcohol, tobacco and gambling industries are considered less objectionable, even though they are regarded as equally harmful by investors. Companies that treat their employees and other people well, and put people's welfare first, are ranked as the best. Whether these companies donate to charities is less important.
Difference between man and woman
The study shows that men and women have different preferences. Women are much more likely to prefer socially responsible investing. Another difference can be found in education and income. Higher-educated respondents and higher-income households are more likely to accept a lower return as long as the investments are sustainable and responsible.
Furthermore, the study shows that smokers and/or drinkers are less likely to take issue with investing in the tobacco and alcohol industries. By contrast, Europeans generally have fewer objections to this industry than Americans, and are mainly focused on social entrepreneurship.
Pownall: "Personal values and wishes are rarely considered when a portfolio of investments is put together, while the results of the study show that clients of investment companies have strongly differing ideas about the kind of investments they need the company to make for them. These results mean that further research is certainly called for."
Social engagement also affects investment choices, in that placing greater emphasis on the investment type rather than on the return directly contradicts the general assumption that reaping the highest return possible is the key objective in investment decisions. The reason for the study was the growing interest in social engagement, and the increasing purchase of socially responsible products.
Pownall: "We see that people increasingly prefer socially responsible products to alternatives, even if they are more expensive. Perhaps the premise "people are willing to pay more for a better product" applies here. But in the case of investments, we often assume that they should yield maximum return. We wondered whether that premise still holds in the face of increasing social engagement, and it seems that a turning point is taking place."