Despite the criticism laid at its door— which the industry must address if ESG is to be a credible investment remit for investors  — ESG investing remains a well-meaning concept that has long term value for the world, financial markets and investors alike.

ESG investing is not a new concept. According to the MSCI website, “the practice of ESG investing began in the 1960s as socially responsible investing, with investors excluding stocks or entire industries from their portfolios based on business activities such as tobacco production or involvement in the South African apartheid regime.” Since then, ESG has grown in reach and popularity and become a mainstay for fund managers serving the needs of large institutional investors such as pension funds.

But ESG investing is not just about making ethical investment decisions, it may also have   an impact on financial performance—how a company reduces its reliance on fossil fuels, prioritises corporate accountability and commits to ensuring the well-being of its employees makes good business sense. In short, ESG criteria offer investors an added means of evaluating a company’s stock beyond its balance sheet.

“ESG factors can be useful additional analysis when making a decision to buy a certain stock. How a company manages its exposure to climate change or human rights, for example, could have a significant impact on its stock’s performance. A company well-equipped to face ESG issues is more likely to be resilient over the long term and therefore more sustainable,” said Daniela Hathorn, Market Analyst, Capital.com.

Yet, despite its potential value to investment strategies, both financial and ethical, ESG investing is failing to trickle down to the wider retail investment and trading community.

According to a global poll conducted by Capital.com, more than half of the 1800 people surveyed (52%) have never selected a stock or made a trade based on ESG criteria. In fact, only 7% of respondents said they considered social and environmental reasons as key to their trade selections.

However, the same survey also showed that retail investors understood the contributions ESG investment can make to an overall trading and investing strategy with 40% of respondents saying that both profit and making a positive social and environmental impact were important to their investment selection strategy. When asked what was preventing them from incorporating ESG factors to their strategies, 46% cited a  lack of knowledge and high fees (12%) as the main obstacles.

Democratise  access to ESG data

“There is clearly a lack of awareness and information around sustainable investing. This information gap has significantly impacted the adoption of ESG among retail traders and investors, which is compounded further by a perception that sustainable investments come with a premium. By making ESG data more widely available to all investor groups, including self-directed retail investors and traders, we can level the playing field and empower more people to make sustainable choices,” said Kypros Zoumidou, Chief Commercial Officer, Capital.com.

The question then remains — who should lead the charge in providing greater access and information around ESG to retail investors? Fund managers are an option, but this often comes with fees and larger investment minimums.

With more and more people turning to self-directed trading platforms, there is a case for ESG data to be made more easily available via trading platforms. As an interface between the retail trader and markets, DIY trading platforms could help bridge the gap. Platforms have a responsibility to increase efforts to raise awareness of ESG, explain how ESG  might fit into traders’ strategies and provide the simple and concise ESG data so that investors and traders can make more sustainable investment choices.

“Knowing where and how to access ESG data can prove challenging and cumbersome for retail investors,” explained Zoumidou. “It would be far easier for people to make sustainable investment decisions if the ESG data were to be made available through a single repository.“

Capital.com has recently begun to offer its traders and investors access to market-leading ESG ratings tools powered by Refiinitiv, at no additional cost and underpinned by more than 450 different ESG metrics. The ESG scores measure a company’s relative ESG performance, commitment and effectiveness across 10 main themes. These include emissions, environmental product innovation, human rights, and shareholders based on publicly-reported data. This is supported by additional explainers around what ESG is and how people can trade and invest alongside ESG considerations.

“Now retail traders and investors will have comprehensive ESG data at their fingertips at the precise moment they need to make an investment decision,” added Zoumidou.

To learn more about ESG investing and how to use ESG ratings tools on Capital.com, visit https://capital.com/esg-rating

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors, not necessarily Capital.com or any of its affiliates, subsidiaries, officers, or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Past performance is no guarantee of future results.