Do private wealth investors care about sustainability?
Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income at the Global Investment Center of the Private Bank of ABN AMRO, investigated the sustainability preferences of wealthy private investors and the impact of sustainability ratings on their asset allocation decisions together with Amir Amel-Zadeh of Oxford University and Rik Lustermans of Erasmus School of Economics.
Their research shows that European private wealth investors invest significantly more in assets with high sustainability ratings than low sustainability ratings and investors react to changes in sustainability ratings by rebalancing their portfolios towards higher-rated assets.
During the research period, investors allocated more money to assets with a high sustainability rating and less to assets with a low sustainability rating, compared to assets with a moderate sustainability rating. Approximately €58 million per month was allocated to incremental investments in assets with a high sustainability rating, compared to assets with a low sustainability rating. Over the entire sample period, this resulted in retail investors of this bank allocating approximately €2.5 billion to assets with a high sustainability rating.
The effect of advice
The difference in flows is bigger for equities than for bonds which is mainly due to allocation decisions made by investors who receive advice: those who are quicker to get striking information on the sustainability ratings of their assets. Investors who receive more striking information on sustainability, the advisory client group, react more strongly to changes in the sustainability ratings of their portfolios. Assets that are downgraded are scaled down and assets that are upgraded are raised. In this way, portfolios are rebalanced with higher-rated assets.
Positive investment flows
The results suggest that improvements in sustainability ratings generate significant positive investment flows, in particular among advisory clients and, in particular, investors in countries that regularly report on ratings. This implies that investment flows are more sensitive to positive rating changes in countries where sustainability ratings are more visible to investors. In conclusion, the study suggests that private equity investors take sustainability information into account in their investment decisions and make economically meaningful allocations to assets with higher sustainability ratings.