08 March 2024

SUERF's Buchanan/Silvola/Vähämaa: Sustainability and Private Investors

We find that 60 percent of all survey respondents consider environmental, social, and governance (ESG) factors when making their investment decisions. According to our results, women and millennials are more likely to follow sustainable investment strategies than investors on average.

In this study, we examine private investors’ attitudes and behavior towards sustainable investing. Our analysis is based on a survey of 5,030 Finnish private investors. We compare traditional, ethical and sustainable investment strategies. We find that 60 percent of all survey respondents consider environmental, social, and governance (ESG) factors when making their investment decisions. According to our results, women and millennials are more likely to follow sustainable investment strategies than investors on average. Language background, location, and education levels also tend to influence investment behavior. Both sustainable and traditional investors are willing to take risks in their investment strategy. In this study, we also report on the effects of the COVID pandemic on investor behavior. We find that investors who started investing during the COVID pandemic are less likely to choose traditional investment strategies.

Sustainability and Private Investors

Private investors are an increasingly important voice in sustainability challenges. Sustainability encompasses “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Report, 1987). Whilst sustainable investing incorporates environmental, social and governance (ESG) factors, it is considered a different strategy to traditional investing or ethical investing. Traditional investors do not usually consider values like ESG, nor are they willing to compromise returns. Ethical investors tend to be willing to compromise returns to invest according to their conscience (or values). What differentiates sustainable investors is they are not willing to compromise their returns, whereas ethical investors are (Haber et al., 2022; Silvola and Landau, 2021; Michelson et al., 2004).

Regarding private investors, there tends to be a lack of empirical evidence on two key issues:

1. whether and how private investors perceive sustainable investing.
2. the characteristics of private investors who are interested in sustainable investing.

 

This is surprising given that private investors hold investments equivalent to $42 trillion globally (World Economic Forum, 2022). Given that private investors represent significant wealth, they have the potential to be important change agents regarding sustainability challenges. Furthermore, the private investor perspective is important because they have latitude in how their capital is deployed. Nor are they accountable to others in the same way as fund managers might be.

In this study, our central research question is based around private investors’ attitudes towards sustainable investment. We empirically examine private investors’ profiles and their attitudes to sustainable, ethical, and traditional investing. We examine the most frequently applied decisions by private investors, as well as the main factors driving their decision to invest sustainably. Finally, we report on the effects of the COVID-19 pandemic on private investor behavior and how sustainable investing is expected to develop in the five-year post-survey period....

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