Responsible investing – the secret to mainstream success

by Zara de Belder | 2nd July 2019

Each week we see different headlines about millennials and women being the most active supporters of responsible investing strategies. Like most clichés there is some substance to this but it’s not the whole story.

There is certainly plenty of data and research to support the financial potential of women and millennials. Recent research from EY found that millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental causes. With millennials expected to receive more than $30 trillion of inheritable wealth (more research from EY), this makes them a force to be reckoned with.

However, we face a wider challenge.  For responsible investing to become mainstream, it requires the backing of a much wider universe of investors who understand the jargon and acronyms but also believe in the concept of the triple bottom and are willing to use their money to do good whilst creating long-term value. So, who are these supporters?

Retail investors.

The good news is that there is an army of them. The bad news is that they are not so easy to categorise by age or gender. They’re people of all ages who have been largely overlooked by the responsible investing community. Unless remedied, this could be a costly mistake. Retail investors have the potential to own a significant share of assets and we are slowly starting to see their impact. According to research from Eurosif, by the end of 2017, retail investors accounted for 30.7% of the responsible investing industry – a ninefold increase from 2013! Morningstar also noted similar findings in their survey, concluding that most retail investors in the US, regardless of age or gender, expressed a preference for ESG investment products.

So how do we reach them?

By making responsible investing tangible, meaningful and relevant. Retail investors may become confused or overwhelmed by ratings, scores, methodologies. The terms SRI, ESG, ethical finance, responsible investing and impact investing might be abstract concepts, splattered across newspapers or something a financial advisor once mentioned in passing.

Instead what will capture their imaginations or excite them is understanding how their investment can make a positive impact on their environment or local communities. We need to start talking in language that is human and relevant. We need to find translatable figures and statistics that bring responsible investing to life, such as how many swimming pools of water you will save by investing in a certain product.

Communications play an important role in educating, informing and raising awareness of new products or strategies. The appetite is certainly there – successful campaigns like Good Money Week are an excellent example of how we can engage with retail investors. But more needs to be done. We need to mobilise the investment community, communications professionals, marketers and advertisers, politicians and regulators, to collectively address the issue. Exclusion is simply not a commercial or sustainable option.

We need the right products, but we also need to create the right messaging and tell the right story. To do this we need to understand what makes retail investors tick. What products and investment strategies best suit their needs? How should information and advice be communicated and presented? This requires more data and more research. Having spent the last year writing a 120-page thesis on the issue, there’s a huge opportunity to dive into the retail investment opportunity.

The question is, who will take the first plunge?

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About the Author

Zara de Belder

zdebelder@maitland.co.uk

Zara specialises in sustainability, responsible investing and environmental communications

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