Investors have a responsibility to ensure their money is being used for good, instead of funding harmful practices such as fossil fuels, according to a recent survey of UK consumers by Triodos Bank.
Respondents to the survey also said they felt people needed to collectively invest in long-term solutions to the issues the world is facing, such as investing in renewable energy to bring down energy costs and reliance on fossil fuels.
Amid the demand for more sustainable investment strategies, the cost of living crisis is also having an impact on people’s desire to invest.
Rising energy bills and living costs have also accelerated people’s dissatisfaction with the status quo of the financial system, leading them to demand positive long-term change, the study found.
However, there is a worry that the cost of living increases have had an impact on people being able to use their money for positive change.
Despite this, almost two-thirds of people (64 per cent) say those that can afford to invest should choose sustainable investments that help bring about positive change for everyone.
The report added: “Nearly three quarters of the UK public (73 per cent) believe we need to collectively invest in long-term solutions to the issues the world is facing – such as investing in renewable energy to bring down energy costs and reduce our reliance on fossil fuels.
“This demand is being driven by three quarters of people (75 per cent) saying they are frustrated that big banks continue to make huge profits despite cost of living increases. For those over the age of 55, this rises to 81 per cent – implying that the older generations may be even more concerned.
“In light of rising household costs, over half of people (54 per cent) want banks to do more to invest in long-term sustainable change, while 53 per cent say being more careful with their money makes them think more critically about how it is being used by their bank.
Power of collective individual action
Misconceptions about not being able to save enough to make a positive impact may also be holding many people back from making ethical and sustainable choices with their money, the study found.
Six in 10 people (61 per cent) believe that they do not have enough savings or investments for their impact to make a difference, while more than half (56 per cent) think you have to be rich to be able to make a positive impact with money.
Roger Hattam, director of retail banking at Triodos Bank UK, said: "The prevalent myth that you have to be very wealthy to make a difference with your money couldn't be further from the truth.
“Even a small amount in an Isa with a sustainable provider reroutes money from harmful sectors into positive ones, and sends a powerful message to the wider finance industry that enough is enough. It’s through collective action that putting your money into an Isa with a sustainable bank supports a wider ecosystem of green finance that brings about real change.”
In agreement, Patrick Yau, director of strategic investor relations at Edison Group, said companies should not overlook the value of retail investors, a value that stems less from individual power and more from their combined impact.
Additionally, while the capital attached to each individual retail investor may be small, when compared with institutional investors, when considered in aggregate, these private investors account for a large portion of investment potential.
Retail investors can be very influential in driving both liquidity and stock prices, especially for mid-and small-cap stocks.Patrick Yau, Edison GroupYau said: “Data from the most recent Investment Association Annual Survey (published in September 2022) suggested that IA members managed £4.7tn on behalf of UK-based institutional clients in 2021, compared to total retail investor funds under management of around £1.6tn.
"Undoubtedly, institutional investment has its own unique set of benefits for a company. Institutional investors can deploy large chunks of investment capital onto company share registers, meaning that they can build their desired positions quickly in larger cap and more liquid stocks. Similarly, when they decide to exit a stock they can do so quickly and cleanly."
Yau added: “Where liquidity is more limited, however – typically the case in the mid and small cap end of the market – these institutional investors become increasingly constrained in their capacity for dynamism, sometimes to the extent that larger institutions may not be able to invest at all.
“It’s in such scenarios that the impact of the retail investor can be significant, as it’s here that these private investors are able to purchase stock at lower volumes, offering an alternative group of buyers where institutional investors bow out.”
Last year proved particularly challenging for the sustainable funds given rising energy prices and high inflation.Boya Wang, MorningstarWhile institutions take a long-term view when placing their investments in stocks they like, Yau noted, such far-sightedness worked well for bringing stability and credibility to the share register, along with support for future fundraisings.
Yet, once these bets are placed, institutions tend to take a step back from their investments. Hence in quiet periods trading volume can dry up if there are no marginal buyers and sellers active in the market.
He added: “It is in these margins where the retail investors can make their presence felt. Even if they trade in lower volumes than the average blue chip institution, retail investors can be very influential in driving both liquidity and stock prices, especially for mid-and small-cap stocks.”
Analysing the results, Boya Wang, ESG analyst at Morningstar, said: “While over the medium (three-year) and long term (five years or more), sustainable funds outperform their conventional peers, last year proved particularly challenging for the sustainable funds given rising energy prices and high inflation.
“Some sectors such as clean technology, which were once highly chased by sustainable funds, underwent a price correction.
"Sustainable funds, bounded by their investment mandates and stock selection methods, have less flexibility in readjusting their portfolios or risk exposure.”
ima.jacksonobot@ft.com
