Second, many potential investors see sustainable goals as a primary motivation, not as a nice-to-have, second-order add-on to investment concerns.
Traditional ESG marketing has, perhaps sometimes disingenuously, promoted sustainable solutions as a way to achieve social goals with no cost to financial outcomes.
However, responses to one of the core dimensions of Oxford Risk’s sustainability profiling tools – ‘Impact Trade-off’ – have consistently shown that a significant portion of investors will want to give up some financial returns or liquidity, or are happy to take more risk, if they know that their investments are likely to be having a social impact as a result.
Of the several thousand investors we have surveyed worldwide, 59 per cent agreed with the statement: "I would accept a lower financial return if an investment had social benefits."
Only 12 per cent disagreed. If you took your cues from ESG advertising, you would believe those numbers were the other way around.
At Oxford Risk, building on research covering many continents, and many thousands of investors, we have long argued that sustainability preferences are a key part of understanding financial personality – and therefore integral to a comprehensive suitability process – a process that understands that:
- financial returns are not the only thing investors value;
- financial returns are not just a means, they can be an end; and
- investors need to feel comfortable with their portfolio if they are to succeed.
It is always better to treat the patient than the disease. Sustainability preferences are part of a wider financial personality. Sustainable investments are part of a wider portfolio of investments. They are inevitably intertwined with questions of risk and other goals – both social and financial.
Prioritising matching ticks to boxes over investors to suitable solutions risks turning the best of intentions into the worst of outcomes, and profitable opportunities into regulatory fines.
Understanding and engaging investors on the dimensions that move them, on the other hand, leads to more money invested and more suitably, and sustainably so.
Greg B Davies is head of behavioural finance at Oxford Risk
