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Retail investors play a critical role in the shift towards a more sustainable financial system, with European households owning roughly 30% of total financial assets at the end of 2017. Additionally, multiple studies and our own research shows that the majority of them wish to have a positive impact with their money and to invest sustainably.

However, a number of obstacles prevent retail investors from realizing their social and environmental 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 regarding various investment funds’ impact.

In order to address this principal-agent problem, building in part on the 2° Investing Initiative’s research findings, 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’ social and environmental preferences. We expect that these reforms will eventually lead to a major transformation of the retail investor market in Europe and will inspire similar reforms in other jurisdictions.

Our retail investing and consumer protection program aims to help support and accelerate this shift in Europe and beyond. To achieve this, we will undertake a multi-disciplinary approach in close collaboration with partners including consumer research, behavioral finance, legal and regulatory analysis, policy work, methodological and data work, and software development.

The components of our research include:

Market research

These workstreams aim to deepen our understanding of consumers’ sustainability preferences and the market gap.

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

Responsible marketing and distribution

This stream of research aims to prevent mis-selling of unsuitable financial products to consumers who wish to have an environmental impact.

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

Suitability assessment

A ‘suitability assessment’ is the process of collecting information about a client and the subsequent assessment by the firm that a given investment product is suitable for him or her, based also on the firm’s solid understanding of the products that it can recommend or invest into on behalf of the client. The right recommendations are critical to prevent greenwashing or mis-selling.

  • Policy work: reform of MIFID / IDD
  • Suitability questionnaire
  • Product database
  • Online financial advisor

Related resources

This project was made possible by

Life

Horizon 2020

Hewlett Foundation