Retail investors around the world are far more likely to ignore ESG (environmental, social and governance) factors than consider them before investing, according to data from the latest Retail Investor Beat (RIB) by online broker eToro.
In the study of 10,000 retail investors in 12 countries, just 22% said they always consider ESG before investing in an asset. More than twice that number (46%) said otherwise, with a significant proportion (14%) of this camp turning their backs on ESG after previously prioritizing it. A further 22% said 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 survey also showed that the performance of ESG-labeled assets was an issue, with the world’s largest ESG fund underperforming the S&P 500 over the past 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 investments has sunk since the heady days of 2021. Inflows into the sustainable capital industry have fallen from over $100 billion in the quarter to breakeven, while the number of new funds has shrunk from over 300 in quarter then to under 100 now .
“Underperformance has been a key factor here, with the $29 billion Parnassus Core Equity fund, the world’s largest ESG fund, underperforming the S&P 500 by 5% over the past year and by 2% over the past three years. The decline in EV and renewables investments was worse, with EV poster-boy Tesla and the leading renewable energy ETF iShares Global Clean Energy (ICLN) both halving in price from their peaks in 2021″.
According to the data, older retail investors are less likely to consider ESG, with 18% of the oldest cohort in the study (aged 55+) always factoring it into investment decisions, while 52% do not. Among investors aged 18-34, 23% always consider ESG factors and 40% do not, with more than half of this latter group (21%) turning their backs on it.
In the study, investors who do look at ESG were asked which letter they thought was more important – E, S or G. Environmental factors topped the others, with 32% prioritizing ‘E’. This was followed by social (23%) and then governance factors (19%), while 25% state that all are equally important. There was also a significant generational difference with ‘S’ being the most important element (33%) for 18-34 year olds, while for every other age group it was ‘E’.
North adds:
“While institutions may believe that governance issues are at the top of the priority list for their shareholders, environmental concerns tend to trump everything else for the majority of ESG-conscious retail investors. The exception to the rule is Gen Z and younger millennial investors, for whom social issues are most important – perhaps not surprising given the current interest in business 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 in 12 countries and 3 continents. The following countries had 1,000 respondents: UK, USA, Germany, France, Australia, Italy and Spain. The following countries had 600 respondents: the Netherlands, Denmark, Poland, Romania and the Czech Republic.
The survey was conducted from May 15 to June 5, 2024 and was conducted by research firm 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 didn’t have to be eToro users.