ESG for Everyone: How to improve retail ESG investing
The $50 trillion impact industry
By 2025, the global ESG (Environmental, Social and Governance) market will surpass $50 trillion, making up ⅓ of all assets under management.1 The appeal is understandable: impact-driven firms are more profitable, more resilient to crises, and genuinely improve the world.2
Much of this predicted growth comes from retail investors: 82% of global retail investors are interested in investing in companies that value social and environmental progress.3 Until recently, only institutional investors had enough resources to sift through hours of sustainability reports. But with the advent of low-cost retail trading platforms and widely available ESG ratings, it’s never been easier to invest in impact.
Unfortunately, something critical is preventing this retail capital infusion – sheer and utter confusion.
Approximately ⅓ of retail traders feel like they lack adequate answers to their questions about what ESG is and how it operates.3 In a recent survey, only 24% of retail traders could accurately define ESG. In fact, 25% believed that ESG stands for “Earnings, Stock, and Growth”.4 Clearly, the impact of ESG has been lost in translation.
References
- Henze, V., & Boyd, S. (2022, January 24). ESG May Surpass $41 Trillion Assets in 2022, But Not Without Challenges, Finds Bloomberg Intelligence. Bloomberg.com. Retrieved July 7, 2022, from https://www.bloomberg.com/company/press/esg-may-surpass-41-trillion-assets-in-2022-but-not-without-challenges-finds-bloomberg-intelligence/#:~:text=London%2C%20January%2024%2C%202022%20%E2%80%93,surpassed%20%2435%20trillion%20in%202020
- Henisz, W., Koller, T., & Nuttall, R. (November, 2019). 5 ways ESG creates value. McKinsey. Retrieved from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx.
- Coulter, C. (2021). Retail Investors’ Views of ESG(Report No. : 6123). Globespan. https://3ng5l43rkkzc34ep72kj9as1-wpengine.netdna-ssl.com/wp-content/uploads/2021/12/GlobeScan-Radar-2021-Retail_Investors_Views_of_ESG-Full-Report.pdf
- Mottola, G., Valdes, O., Ganem, R., Fontes, A., & Mark Lush. (2022, March). Investors say they can change the world, if they only knew how: Six things to know about ESG and retail investors. FINRA Investor Education Foundation. Retrieved July 6, 2022, from https://www.finrafoundation.org/sites/finrafoundation/files/Consumer-Insights-Money-and-Investing.pdf
- Berg, F., Kölbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG Ratings. Review of Finance. https://doi.org/10.1093/rof/rfac033
- Rzeźnik, A., Weiss Hanley, K., & Pelizzon, L. (2021). Investor Reliance on ESG Ratings and Stock Price Performance. SAFE Working Paper No. 310. https://doi.org/http://dx.doi.org/10.2139/ssrn.3801703
- Rzeznik, A., Weiss Hanley, K., & Pelizzon, L. (2021). The Salience of ESG Ratings for Stock Pricing: Evidence From (Potentially) Confused Investors. CEPR Discussion Paper No. DP16334. https://doi.org/https://ssrn.com/abstract=3886820
- White, N., & Schwartzkopff, F. (2022, June 15). Goldman Investigation Tarnishes ESG Halo as Investors Bail. Bloomberg News. Retrieved July 8, 2022, from https://www.bloomberg.com/news/articles/2022-06-15/investors-are-increasingly-skeptical-of-esg-this-is-why.
- FinTech Global. (2022, March 7). 50% of retail investors to shift funds into ESG in 2022 | Fintech Global. FinTech Global. Retrieved July 18, 2022, from https://member.fintech.global/2022/03/07/50-of-retail-investors-to-shift-funds-into-esg-in-2022/
About the Authors
Triumph Kerins
Triumph is passionate about understanding how human behavior influences our world. Whether it be global macroeconomics or neural networks, he is fascinated by how complex systems work, as well as how our own behavior can help create, sustain, and break these systems. He is currently pursuing a Bachelor’s degree in Economics and Psychology at McGill University, attempting to design an interdisciplinary approach to better understand all the quirks that make us human. He has experience in non-profit consulting, journalism, and research. Outside of work, you can find Triumph playing bass guitar, gardening, or down at a local basketball court.
Dan Pilat
Dan is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. Dan has a background in organizational decision making, with a BComm in Decision & Information Systems from McGill University. He has worked on enterprise-level behavioral architecture at TD Securities and BMO Capital Markets, where he advised management on the implementation of systems processing billions of dollars per week. Driven by an appetite for the latest in technology, Dan created a course on business intelligence and lectured at McGill University, and has applied behavioral science to topics such as augmented and virtual reality.
Sarah Chudleigh
Sarah Chudleigh is passionate about the accessible distribution of academic research. She has had the opportunity to practice this as an organizer of TEDx conferences, editor-in-chief of her undergraduate academic journal, and lead editor at the LSE Social Policy Blog. Sarah gained a deep appreciation for interdisciplinary research during her liberal arts degree at Quest University Canada, where she specialized in political decision-making. Her current graduate research at the London School of Economics and Political Science examines the impact of national values on motivations to privately sponsor refugees, a continuation of her interest in political analysis, identity, and migration policy. On weekends, you can find Sarah gardening at her local urban farm.
About us
We are the leading applied research & innovation consultancy
Our insights are leveraged by the most ambitious organizations
“
I was blown away with their application and translation of behavioral science into practice. They took a very complex ecosystem and created a series of interventions using an innovative mix of the latest research and creative client co-creation. I was so impressed at the final product they created, which was hugely comprehensive despite the large scope of the client being of the world's most far-reaching and best known consumer brands. I'm excited to see what we can create together in the future.
Heather McKee
BEHAVIORAL SCIENTIST
GLOBAL COFFEEHOUSE CHAIN PROJECT
OUR CLIENT SUCCESS
$0M
Annual Revenue Increase
By launching a behavioral science practice at the core of the organization, we helped one of the largest insurers in North America realize $30M increase in annual revenue.
0%
Increase in Monthly Users
By redesigning North America's first national digital platform for mental health, we achieved a 52% lift in monthly users and an 83% improvement on clinical assessment.
0%
Reduction In Design Time
By designing a new process and getting buy-in from the C-Suite team, we helped one of the largest smartphone manufacturers in the world reduce software design time by 75%.
0%
Reduction in Client Drop-Off
By implementing targeted nudges based on proactive interventions, we reduced drop-off rates for 450,000 clients belonging to USA's oldest debt consolidation organizations by 46%
