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Retail investors should play a critical role in the shift towards a more sustainable financial system, with European households owning roughly 30% of total financial assets as of late 2017. Additionally, multiple studies and our own research shows that the majority of them want to make a positive impact with their money.

However, a number of obstacles prevent retail investors from realizing their non-financial investment objectives. These include financial advisors’ ignorance of clients’ sustainability objectives and failure to integrate them into investment strategies; the lack of suitable products on the market; and greenwashing around various investment funds’ real-world impact.

In order to address these issues, the European Commission is currently introducing a series of reforms, such as an obligation for financial advisors to ask about and take into account clients’ non-financial investment objectives. We expect that these reforms will lead to a major transformation of the retail investor market in Europe and will inspire similar reforms in other regions.

To support this shift, 2° Investing Initiative launched a series of workstreams in 2019 focused on the retail investing market (notably in Europe).

Thus far, our research has focused on the three topics below:

Market research – aiming to deepen our understanding of consumers’ sustainability preferences and the market gap

  • Quantitative / qualitative consumer surveys and focus groups
  • Behavioral finance field experiments
  • Literature reviews
  • Product benchmarking

Responsible marketing and distribution – aiming to prevent mis-selling of unsuitable financial products to consumers who want to have an environmental impact

  • Environmental impact assessment
  • Environmental impact claims review
  • Mystery shopping visits
  • Policy work: green labels & green tax incentives

Suitability assessment research – aiming to ensure financial advisors ask the right questions and market the right products to their clients

  • Policy work: e.g. reform of the Markets in Financial Instruments Directive (MIFID) / Insurance Distribution Directive (IDD)
  • Improvements to the suitability questionnaire
  • Online financial advisor
  • Sustainable product databases

 

Funders’ info: Various parts of our retail investment research program have received funding from the European Union’s Life IP programme under grant agreement No LIFE18/IPC/FR/000010 A.F.F.A.P. Other components of this program have also received support from the Hewlett Foundation and the KR foundation. This webpage reflects the authors’ views only, and the funders are not responsible for any use that may be made of the information it contains.

   

 

Note on the funding of our German retail investment research program: The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative through its National Climate Initiative. The funding is dedicated to a new retail platform developed by 2DII called “MeinFairMögen” (in English “MyFairMoney”). The independent and non-profit platform will help retail investors to better integrate non-financial preferences into their investment decisions. It will comprise an online suitability questionnaire for non-financial preferences, a fund database with extensive sustainability information as well as guidance and educational material for retail investors. The project period is from 2018 until 2020 and carries the funding code 03KF0076.