Retail investors integrating ESG into investment decisions: Investment Trends

Retail investors are increasingly taking ESG considerations into account when making decisions to buy or sell investments, according to Investment Trends.

Nearly half of investors report they take ESG into account in making decisions, according to the Investment Trends 2021 Investor Product Needs report. The report analyses demand and usage of retail products including desired product attributes, motivations for investment, channel issues, key investor influencers, and views/perceptions of related fund managers and product providers, based on a survey of 7,104 Australian investors conducted between August and October 2021.

In 2021, 46% said they bought or sold investments based on ESG factors, up from 40% in 2020, noted Investment Trends head of research Irene Guiamatsia.

"It is a statement of fact that ESG is a theme that has really been elevated throughout the year, culminating in COP26," she said.

However, environmental, social and corporate governance issues weighed differently in investors minds. Environmental issues were the most influential factors, with 37% of respondents saying they took environmental issues into consideration when buying or selling.

Nearly a third of investors - 30% - said they take ethical issues into consideration, a jump from 18% in 2020. Meanwhile, corporate governance was cited by 23% of investors in 20021, down from 29% in 2020. Social issues also increased, from 9% in 2020 to 11% in 2021, and Indigenous issues were cited by 11% of investors, compared to 7% in 2020.

There is also a buy-side bias in ESG decision making - for example, while overall, 37% said environmental issues mattered, 27% said it mattered for buy-side decisions, 6% said sell-only, and 4% said buy or sell. Similarly in ethical considerations, 20% said it contributed to buy-only decisions, 6% said sell-only decisions, and 4% said buy and sell.

"The level of understanding of what ESG is, those metrics are rising, and we can quantify the willingness of investors to back that understanding with money," Guiamatsia said.

Overall, Investment Trends found investors outlook for the local share market for both capital gains and yields, remains optimistic. The survey shows that the average investor capital gains expectations for the All Ords have oscillated between 0% and 8% over the past 12 months, settling at around 4.3% in July-October 2021 as the market tests all-time highs. Average yield expectations have also risen to 4.3% over the period, up from 3.0%.

The survey also found a surge in adoption of ETFs and cryptocurrencies.

"When we ask investors specifically why they're using cryptocurrencies you want to turn a quick profit, are you seeking diversification, or are you looking at the long term growth prospect," Guiamatsia said. "Most say they're seeking diversification and the long term growth prospect. It's a realisation that there is a strategy, it's an asset class, and it's important to get in to some degree, even if it's small."

Read more: Investment TrendsIrene Guiamatsia