If you know little or nothing about a particular subject, it makes you feel uncertain, and this leads you to take a negative view of it. It’s a psychological principle that applies to many things, explains Stefan Zeisberger. ‘Whether it’s buying your first shares or trying a foreign dish you’re not familiar with. If you’re unfamiliar with something, you’re less likely to give it a go.’
Survey
This is also reflected in the research carried out by Stefan and his colleagues into what people know about sustainable investing. To this end, they conducted a survey among 310 Dutch people. ‘General awareness of this topic is quite high. People are interested in sustainable investing. For example, they know what greenwashing entails and what the main aim of sustainability is.’ However, knowledge of the essential basic rules involved is very limited. ‘That creates a major barrier to starting to invest sustainably. I’m not passing judgement on that, but it is a pity. Because if you have the knowledge, you’re better able to decide whether you want something or not. Then every choice is a well-considered one.’
The research was prompted by European regulations stipulating that consumers must be asked about their sustainability preferences. Financial advisers and banks are legally obliged to do this, and pension funds also want to gain a better understanding of this. ‘In this way, the EU is trying to encourage people to invest sustainably, without forcing them.’ Currently, around 20 per cent of all investments worldwide are sustainable. ‘It’s a relatively new topic. Twenty years ago, it was still a niche area. Five years ago, it was very popular. Now it’s levelling off a bit.’
Light and dark green
When it comes to sustainable investing, understanding the difference between light-green and dark-green investments is essential. The research shows that this knowledge is lacking. ‘With a financial product that is light green, sustainability is taken into account but is not the main objective. With a dark green product, sustainability is the main objective. That is important information, but few people are aware of it. If you don’t know that, it’s difficult to make the right choice.’ Transparency alone is not enough, says Stefan, because it remains a very technical matter. ‘This information needs to be more clearly visible. People often buy based on the title without understanding what’s in the product, because finding the details takes a lot of effort.’
People also know little about ESG investing. ESG stands for Environment, Social and Governance, but they often think that the S and G stand for Sustainable Goals. ‘ESG investing is primarily about the extent to which a financial product is exposed to risks relating to the environment, social responsibility and good governance – for example, the risk associated with an investment in oil. That’s slightly different from sustainable investing, which is really about making an impact.’
Altruism
As well as knowledge, expected returns are another factor in deciding whether or not to opt for sustainable investing. ‘Around half of people do it for financial reasons. The other half do so out of altruism. If you have a partner and children, you’re more likely to invest sustainably. In fact, there’s only a small group who don’t want to invest sustainably at all, even if the expected returns are the same.’
Stefan and his colleagues also discovered that the gender gap does not exist in sustainable investing, unlike in investing in general. ‘On average, men have more knowledge of investing, but when it comes to sustainability, that is not the case.’ Incidentally, previous research has shown that women are usually better investors. ‘That’s because they don’t change their portfolios very often. Men do, and that usually undermines returns.’
Communication
To improve knowledge of sustainable investing, pension funds and advisers could provide information via leaflets and newsletters. ‘But that’s just one step,’ says Stefan. ‘You could also consider short educational clips on social media.’ Although it won’t be easy to get people to watch these clips. Sustainability is often not a topic covered by finfluencers (financial influencers). ‘That probably wouldn’t generate enough clicks. They mainly talk about topics that are currently in the spotlight, such as SpaceX, the Iran conflict and Bitcoin.’
Sustainability is also harder to explain, Stefan points out. ‘If you invest more money in sustainability, it doesn’t automatically mean that CO₂ emissions will fall. It’s a lot more complex than that, but people should at least understand that products can be more or less sustainable. Regulations must ensure that information is available as simply as possible .’
In a follow-up study, Stefan would like to explore how this lack of knowledge can be addressed. What is the most important information you want to convey, and how can you best do so? ‘That’s how you put the findings of this study into practice. Perhaps there needs to be a brief explanation that you can give precisely when people ask for it. Just in time.’