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Virtual investment experiment indicates informed consumers choose sustainable funds even with reduced returns

A new study has shown that when given clear social and environmental performance data, consumers display an appetite for sustainable investment, even with lower returns.

Research by the University of Cambridge Institute for Sustainability Leadership (CISL) simulated real-world investment scenarios in order to analyse the extent the investing public values sustainability.

The ‘virtual investment experiment’ offered a unique, science-based rating format developed by CISL to help people understand easily the sustainable performance of funds. The study found a strong preference for sustainable investing even with a 2-3 per cent sacrifice in returns.

The study also found that participants under 35 and inexperienced savers had a stronger preference for sustainable investment; while income, gender and education had no effect on preference. It also showed there was stronger preference for avoiding funds rated poorly for sustainability than for actively choosing funds with high sustainability, indicating avoiding negative environmental and social impacts is more influential in decision-making than the pursuit of positive impacts.

“The study shows that people want more from their capital than only financial returns,” said Dr Jake Reynolds, Executive Director, Sustainable Economy, CISL. “Given the right information, they will avoid investments which harm people or the environment.

“In the real world most savers are not provided with that information; meaning they are unable to make positive choices. Given what we know about climate change, destruction of nature and high levels of inequality, that needs to change.”

‘Walking the talk: Understanding consumer demand for sustainable investing’ is a collaboration between CISL, the Department of Psychology and the Psychometrics Centre, and was commissioned by the Investment Leaders Group (ILG), which is convened by CISL.

The behaviour of a sample of 2,000 US citizens was analysed to reveal insights into how their decision-making was influenced by the availability of information on the environmental and social performance of funds alongside traditional financial data.

Participants were asked to choose between pairs of funds whose fund factsheets included additional information related to sustainability. In order to simulate real-world behaviours, participants knew they had a chance of receiving a financial investment of $1,000 in the fund of their choice.

The typical fund factsheets’ additional clear social and environmental impact information was based on a unique rating format called the Investment Impact Framework developed by CISL for the ILG. The Framework applies sound science to the measurement and communication of social and environmental fund performance.

“Our findings pave the way for more informed and more effective dialogue between the finance sector and the public about how capital should be invested,” said John Belgrove, Chair of the ILG and Senior Partner at Aon. “This couldn’t come at a more significant or appropriate time – when the world is looking to financial institutions to work towards the systemic change needed to tackle environmental and social sustainability, and climate change.”

Read the full report: ‘Walking the talk: Understanding consumer demand for sustainable investing’ 

Source: Cambridge University

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