Improper ESG engagement is leading to retail underinvestment, finds study
A new Oxford Risk study reveals that wealth managers are failing to engage retail investors in conversation on ESG and responsible investment.
Drawing from a survey of 457 investors managed by wealth managers, it found that nearly half (46%) had never been contacted to discuss their opinions on ESG and responsible investing, and just 37% believed their personal portfolios accurately reflected those beliefs.
Due to this, 32% of investors claim that their wealth manager is not meeting their needs for ESG investment.
Retail investors have been underinvesting as a result of improper ESG engagement. According to 31% of respondents, they would invest more if their portfolio more accurately reflected their opinions on ESG and responsible investing.
More than half (59%) of respondents under the age of 35 said they would invest more money if their portfolio included a greater emphasis on ethical investment, supporting the survey's finding that this is particularly true of younger investors.
Wealth managers not only need to link investor goals with their ESG investments, according to Oxford Risk's experts, but they also stand to gain from doing so.
Investors with high ESG preferences are significantly more likely to invest overall when ESG issues are properly addressed because they are willing to invest up to four times as much in their portfolios and specifically in ESG assets.
According to Greg Davies, head of behavioral finance at Oxford Risk, accounting for investors' sustainability preferences needs a deeper understanding of both financial personality, and that suitability, or matching investors with the right investments, is at the core of helping people use their wealth for good.
"It is surprising that nearly half of investors claim they have never been contacted by their advisers about their attitude to responsible investing and ESG, and fewer than two out of five say their investment portfolio does not represent their views on responsible investing,” Davies said.
"Advisers could be missing out, as substantial numbers of investors would consider investing more if their money was focused on ESG and responsible investing, something that we can help support as part of their advice suitability process."