• February 4, 2023

ESG Investors are Different. The Industry Needs to Approach Them Differently

P.Personality tests and self-analyzes have proven their worth. From today’s Myers-Briggs indicators to the early Greeks who explored approaches to psychometric measurements based on how our bodily fluids or “humor” affected personal traits, personality has long been considered a powerful determinant known of our behavior.

One area where little progress has been made in this work is in investing.

The growth in ESG investment has further highlighted the shortcomings of this approach.

Environment, social and corporate governance oriented investors (ESG) bring different expectations and goals to the market. They want to invest with broader socio-economic implications and tend to have long-term prospects that suggest optimism and a desire to invest in the common good. This is an inspiring signal for people, companies and institutions.

It’s not a small segment.

positive recently conducted a study of investor behavior and found that “purpose” was the most important dimension for almost 40% of investors and one of the two most important dimensions for 67% of all respondents. This trend towards social impact and themed investing has, of course, been going on for some time, but has accelerated during the COVID-19 pandemic with assets in ESG-focused funds over $ 250 billion from September 2020 and continues to grow.

The most interesting aspect of this shift to both ESG and Socially Responsible Investing (SRI) is not so much that it happens, but how different these investors are from their more traditional counterparts. This is partly because ESG and SRI mean different things to different investors.

The main ESG causes that investors identified in our study were everywhere on the map, from health and wellness efforts such as disease cures and tobacco control initiatives, to environmental concerns such as clean water and climate change, to gender and social diversity than eradicating poverty. We found that women prefer to invest in social causes while younger investors prefer to focus on broad global impacts like climate and poverty. Older ESG investors, on the other hand, tend to invest closer to where they live in topics that directly affect their lives, such as: B. Gun Control. Ethnicity and income also play a role – equality and poverty are higher priorities for younger and black Americans, while gun violence and climate are higher priorities for those with higher incomes.

All are ESG, but all are different. The only factor that holds them all together is a shared interest in making the world a better place for all of us.

This makes sense because ESG and SRI investments can be very personal and involve motivations and desires that often go well beyond the financial risk / return calculations of traditional portfolio construction. My ESG is not necessarily the same as your ESG.

It’s like taste in music. We can all say that we are music lovers, even if that means I love rock, you love hip hop, and someone else loves country. But these different segments don’t change the fact that we all love music as a whole.

To reach these new types of investors, who by and large represent the many different faces of ESG, the industry needs to work towards hyper-personalization so that it can reach each investor with information and advice tailored to that person’s interests and motivations are. It has to uncover the “patterns of one” that determine the decisions and motivations of every investor.

This is what we are building at Positivly by combining the principles of positive psychology with modern wealth management to strengthen the connections between investors, their advisors and their wealth.

This is not an easy step, but this challenge presents opportunities. By considering the power of personality, the industry will be better equipped to understand and connect with customers more holistically. Advisers and money managers will create deeper connections with the people behind our accounts.

After all, we are all human with our own hopes, desires, and motivations. In order to better serve the investor of the future, the industry not only needs to know what interests it, but also why.

Dr. Vinay Nair is chairman of THE TIFIN GROUP and founder of Positivly, a personality-based marketplace for advice and investing.

THE TIFIN GROUP designs and builds world-class fintech companies to shape the future of the investor experience.

The views and opinions expressed here are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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