Consumers: the sleepy giant of the sustainable finance revolution.
How many of you know where your pension money is invested?
You are not alone.
In my last blog, I mentioned the USD 2.5 trillion annual investment gap that is hindering achievement of the UN sustainable development goals. Pension funds’ assets amounted to almost USD 33 trillion in 2018. A reallocation of less than 10 per cent of the pension assets towards sustainable investments will go a long way towards reducing the investment gap. Why is this not happening at a faster pace?
Governments and businesses have a critical role to play to reduce the financing gap. But so do consumers! Yet consumers are not pulling their weight. Most consumers are unaware of where their money is invested. A 2018 study by the Defined Contribution Investment Forum(DCIF) found that two-thirds of pension savers in the UK have low levels of knowledge of where their pension money is invested, and they are not confident in making investment choices.
Part of the problem is that information is not available in an easy to understand format to help consumers make decisions. There are thousands of mutual funds in the market. It is costly for consumers to search and identify the sustainable investment funds they want. A recent study by the Cambridge Institute for Sustainability Leadership showed that the availability of sustainability information does influence investment choices. Interestingly, the study found that savers are willing to sacrifice financial returns and choose sustainable funds when they are presented with clear sustainability information. Researchers at the European Corporate Governance Institute recently demonstrated in a comprehensive study that sustainability information increases money flows into high-rated sustainable funds.
In short, consumers, when presented with the right information, can dictate where their hard-earned savings are invested. That said, consumers should take a hard look in the mirror and use their wallet power. Consumers are at the core of the upcoming sustainable finance revolution. It’s time to wake up!
