In focus

Can behavioural finance explain how investors think about sustainability?

Schroders Global Investor Study 2020 examined the attitudes and beliefs of more than 23,000 investors on sustainability.

It is a vast project that yields fascinating insights on the way investors think.

We thought it would be interesting to put some questions to Stuart Podmore, Investment Propositions Director and an expert in behavioural finance, about the main findings.

The study revealed that the majority of investors want to put their money to work in a way that aligns their morals and their money. But nearly a quarter will compromise their personal beliefs if returns on offer are in excess of 21%.

Why do people prefer to invest in line with their beliefs?

Stuart Podmore: "The results suggest a desire on the part of investors to try and avoid what has been described as “cognitive dissonance”.

"This was first investigated by Leon Festinger in 1957, and he argued that humans have an inner drive to hold all of their attitudes and beliefs in harmony. When there’s inconsistency between those attitudes and our behaviours, something’s got to give or change to eliminate that feeling of discomfort or dissonance.

"I think investors are deliberately setting the bar very high here in the hope that they won’t experience the psychological stress or discomfort that occurs when they participate in an action that goes against their beliefs or values."


Over 80% of investors over the age of 51 said they would not pick higher returns over investing in what they believe in. That compares to 75% for millennials.

So, are millennials less moralistic?

Stuart Podmore: "I don’t think so. I think this actually points to millennial pragmatism.

"There was a happiness study undertaken by Blanchflower and Oswald in 2017, refreshed in 2019, which looked at more than one million people across 51 different countries and examined their level of happiness. The results showed that we’re most happy at age 16 and happiness deteriorates until the age of 48 when we reach a “pit of despair”, after which we become happier through to 90 years old (if we live that long!). A lot of this may be to do with the financial security that is often achieved in one’s later years.

"I think the millennial pragmatism suggested by the study points to the idea that they’re on the downward slope of happiness. Millennials are getting older and they’re feeling the financial burdens and pressures of life – stretching to buy a home, educate children, look after ailing parents, while also putting enough aside to provide for retirement.

"With these greater and broader responsibilities, millennials have to be more pragmatic about their money and perhaps they’re therefore more willing to compromise on their values. Maybe people are more likely to stick to their principles a little later in life when they’ve earned a bit more wealth or are in a more comfortable financial position.

"It could also be that millennials realise that returns are going to become increasingly difficult to come by (as we point out in our Inescapable truths for the decade ahead)."


The study also found that the sustainability issue investors were most concerned about was how companies impact communities and society. Environmental issues and the treatment of staff ranked close behind.

What do you make of this?

Stuart Podmore: "Think back to the early stages of the pandemic when companies’ behaviour towards customers, staff and suppliers came under very close scrutiny. This demonstrated to me the key desire we all share for fairness, one of the broad emotional and expressive needs we have when investing.

"When we believe something is unfair, we experience an intense emotional response and this works in tandem with staying true to our values.

"I see this survey result as endorsement that investors recognise sustainability is not just about climate change or electric vehicles, but about all aspects of a company’s behaviour and how it conducts its business in the long term.

"And in the future, there might be two corollaries from this. First, that our social need for cooperation will be critical for future engagement and change. Second, that investors will altruistically punish those companies that don’t play their part, by deploying their capital elsewhere."


It’s encouraging to note that a significant number of investors don’t think they have to sacrifice returns for their beliefs. The study shows that 42% of investors are attracted to sustainable investing because they believe it can offer higher returns.

What does this tell us?

Stuart Podmore: "It would appear that investors are realising that certain values, needs and wants are achieved in the context of sustainable investments, with a long term perspective. That clients’ wealth objectives can coexist with other needs is a welcome revelation for some, and an area where behaviourally literate advisers can make a tangible difference for clients."

About the Schroders Global Investor Study:

Schroders commissioned Raconteur to conduct an independent online study of 23,450 people in 32 locations around the world between 30 April and 15 June 2020. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.


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