Retail investors around the world are significantly more likely to ignore ESG (environmental, social & governance) factors than consider them before they invest, according to data from the latest Retail Investor Beat (RIB) from online broker eToro.
In the study of 10,000 retail investors across 12 countries, just 22% stated that they always consider ESG before investing in an asset. More than double this number (46%) said the opposite, with a significant proportion (14%) of this camp having turned their back on ESG after previously prioritising it. A further 22% said that they only think about ESG when their investments are performing well.
When those who do not consider ESG when investing were asked why, the second and third most common responses were that ESG is confusing (25%) and that there has been too much greenwashing (24%).
The research also showed that performance of ESG-labelled assets has been an issue, with the biggest ESG fund in the world lagging the S&P 500 in the last year. This underperformance has not been lost on retail investors – the most common reason for ignoring ESG was that investors were more focused on returns.
Commenting on the data, eToro Analyst Sam North, says:
“Investor appetite for ESG investing has plunged since the heady days of 2021. Inflows across the sustainable fund industry have fallen from over $100 billion a quarter to breakeven, whilst the number of new fund launches shrank from over 300 a quarter then to under 100 now.
“Underperformance has been a key factor here, with the $29 billion asset Parnassus Core Equity fund, the largest in the ESG world, lagging the S&P 500 by 5% the past year and by 2% in the past three years. The related EV and renewables investment bust has been worse, with EV poster child Tesla and the leading renewables iShares Global Clean Energy ETF (ICLN) both more than halving in price from their 2021 peaks.”
According to the data, older retail investors are least likely to consider ESG, with 18% of the oldest cohort in the study (aged 55+) always factoring it into investing decisions while versus 52% do not. Amongst 18-34-year-old investors, 23% always consider ESG factors and 40% do not, with more than half of this latter group (21%) having turned their back on it.
In the study, investors who do consider ESG were asked which letter they think is most important – E, S or G. Environmental factors came head and shoulders above the others, with 32% prioritising ‘E’. This was followed by social (23%) and then governance factors (19%), whilst 25% say all are equally important. There was also a significant generational disparity with ‘S’ being the most important consideration (33%) for 18-34-year-olds, whilst for every other age group it was ‘E’.
North adds:
“Whilst institutions might think governance issues are top of the priority list for their shareholders, environmental considerations tend to trump anything else for the majority of ESG-conscious retail investors. The exception to the rule is the Gen Z and younger millennial investors, for whom social issues are the most important – perhaps unsurprising given the spotlight currently on businesses and the position they take on social and geopolitical issues.”
The latest Retail Investor Beat was based on a survey of 10,000 retail investors across 12 countries and 3 continents. The following countries had 1,000 respondents: UK, US, Germany, France, Australia, Italy and Spain. The following countries had 600 respondents: Netherlands, Denmark, Poland, Romania, and the Czech Republic.
The survey was conducted from 15 May – 5 June 2024 and carried out by research company Opinium. Retail investors were defined as self-directed or advised and had to hold at least one investment product including shares, bonds, funds, investment ISAs or equivalent. They did not need to be eToro users.
