Mounting evidence: private investors actually care about climate impact investingMatthias Krey
When speaking on investing, most people these days tend to think about cryptocurrency, tech companies and Gamestop, but did you know that many private investors also put their money towards climate impact investing? This is what the industry calls SRI, or sustainable, responsible, and impact investing. Don’t believe it? Read on to find numbers that prove it all about climate impact investing.
What is sustainable investing?
Sustainable, responsible and impact investing (SRI) is an investment ideal that follows sustainability principles of balancing environmental, societal and corporate governance (ESG). Investments that typically address sustainability in this way normally are financially profitable while helping investors sleep at night. SRI may be described as ‘value-based investing’, ‘ethical investing’, or ‘socially responsible investing.’
Examples of ESG criteria
used by sustainable investors
Figure 1: Examples of ESG criteria used by sustainability investors (source: US SIF Foundation)
Figure 1 shows the different ESG criteria that are typically used to make an investment decision by investors. Those that are sustainability aware will recognise the key points and distribution are similar to the sustainability triangle that businesses following sustainability standards also assess to ensure their services or products help provide a positive impact. It is therefore likely that investors prescribing to ESG and SRI investment will actively look for trading bodies that are externally audited and accredited to these standards.
Now, this isn’t all just talk. Although there aren’t many studies currently available on climate impact investments, there is some research done. Here are a few summaries showing that investments that help prevent climate change are the next big thing.
Do we as retail investors want sustainable investment opportunities?
A 2017 report conducted by Morgan Stanley Institute found high levels of interest in sustainable investing among the following demographics;
- 75% of people, in general, are interested in sustainable investing. With millennials specifically, this raises to 86%.
- 71% of investors believe that companies with sustainability at the heart of their practices are being a better long-term investment.
- 80% of individuals are interested in SRIs that can be customised to their specific needs
This appears to show that the younger generation is thinking about qualities that the older generations are not as concerned with. In addition, the by-product of looking for better longer-term investments means that there is a need for wealth generation, not a knee jerk turbulent buy-sell market.
When comparing dozens of other surveys, reports and peer-reviewed journal papers conducted by impartial third parties it was found that all results broadly aligned with the findings above. Sustainability interest ranged between 50% to 80% with the average reporting interest at 70%. 2/3rd of French and German investors reported that they wanted to invest in sustainability. 43% of investors stated that their main goal was to make a positive environmental impact.
Would you believe that the majority accept lower returns for climate impact?
The BNP Paribas Investment study, conducted by BNP Paribas Investment Partners polled 1000 retail investors in Germany what they thought about sustainable investment opportunities. 64% of retail investors agreed with a hypothetical 5% trade-off of their returns in order to maintain sustainability standards. In addition to this, another survey conducted by Hamburg University presented a star rating (1-5 stars) on the climate performance of an investment fund. The study confirmed that climate performance is more important than financial performance for decision-making for a large share of retail investors.
As awareness of sustainability is impacting businesses it is also impacting the minds of the majority of us as private investors – even at the expense of potentially lower returns. Although these are only a few examples of studies, it is overall clear that sustainable and climate positive investing is only becoming more popular. Soon, you will be missing out if you don’t have even a small part of your portfolio in stocks with climate impact investing. So hop on the train, and let’s invest with 100% positive climate impact together!
- Bassen, A.; Gödker, K.; Lüdeke-Freund, F.; Oll, J. (2019): Climate Information in Retail Investors’ Decision-Making: Evidence from a Choice Experiment, https://journals.sagepub.com/doi/pdf/10.1177/1086026618771669
- BNP Paribas (2017): German Investors focus on climate change, https://www.bnpparibas-am.lu/intermediary-fund-selector/german-investors-focus-on-climate-change/
- Dupre, S.; Bayer, C.; Santacruz, T. (2020) A Large Majority of Retail Clients Want to Invest Sustainable, https://2degrees-investing.org/wp-content/uploads/2020/03/A-Large-Majority-of-Retail-Clients-Want-to-Invest-Sustainably.pdf
- Eurosif (2016): European SRI Study, http://www.eurosif.org/wp-content/uploads/2017/11/SRI-study-2016-LR-.pdf
- USSIF (2017): Getting Started in Sustainable and Impact Investing, https://www.ussif.org/files/Publications/Retail_Investor_Guide.pdf