According to behavioural finance experts Oxford Risk, ESG can stop investors from missing out on returns of between 4% and 5% per annum on cash they do not invest because they are not emotionally comfortable with the risks, or familiar with the landscape.
Greg B Davies, PhD, head of behavioural finance, Oxford Risk says: "The biggest behavioural cost to investing is usually not what people do when they are investing. It is the fact that large chunks of cash are left on the side because people are not emotionally comfortable moving out of cash and they surrender returns as a result."
Oxford Risk, a financial services company that builds software that helps wealth managers and other financial services companies assist their clients in making informed financial decisions, argues that part of this discomfort comes from the use of various technical terms and jargon for ESG and responsible investing.
Davies adds: “Our industry is tying itself in knots trying to use specific terminology and frankly the end investor does not care. This is the wrong way to communicate.”
In spite of the barriers, there is strong demand from investors that want to do good and express their social values through their investing. Indeed, a behavioural study conducted Oxford Risk revealed that 18% of UK investors are highly or extremely interested in responsible investing.
Behavioural finance can help address this demand, and help advisors identify the preferences of investors for responsible investing, through the use of personality analysis and specialist technology, pointed out participants of a recent Oxford Risk webinar 'Investing for Real People: Responsible Investor-Led Decision Making.'