Sustainable investment
A new educational tool for retail investors focusing on sustainability is helping guide investment decisions.
Investing for a sustainable tomorrow
Assisting investors to shift towards more sustainable investment choices starts with identifying and eliminating key barriers preventing people from engaging in sustainable, responsible, and impact investing (SRI).
Once these obstacles are addressed, it has enabled development of a new approach to financial literacy focused on sustainable investment practices. And when the potential for change was empowered, the behaviour followed.
The research from knowledge to action: Boosting sustainable investments with financial literacy and ESG disclosure was the result of work by Associate Professor Di Bu, Associate Professor Yin Liao, Deputy Dean Research and Innovation Vito Mollica, Professor Tom Smith, Dr Cynthia Cai and Associate Professor Abhay Singh from the Department of Applied Finance.
This MQ Industry Linkage project was undertaken in conjunction with Futu Securities (Australia) Ltd, which funded the project, and involved a three-phase approach.
The resulting approach combines improved sustainable financial literacy and effective Environmental, Social and Governance (ESG) disclosure to empower retail investors to make informed, responsible investment decisions.
While the key beneficiaries are retail investors, financial advisors have also gained valuable tools to guide their clients towards responsible investing practices.
To ensure a rigorous approach, more than 3,000 Australian retail investors were surveyed initially, which showed that the two primary obstacles to ESG investing were a lack of sustainable financial literacy, and social preferences. This first phase laid the groundwork for developing targeted educational interventions.
The second phase involved developing and implementing the first-ever sustainable financial literacy (SFL) educational program. This involved 2,563 participants, and those who received SFL training showed a 21 per cent increase in their Portfolio ESG Score compared to a control group.
Futu Securities Ltd has since integrated this curriculum into a five-minute video on sustainable financial literacy, which has been viewed by more than 35,000 traders on their platform.
“It’s encouraging for future scalability of the program and the potential for widespread impact,” Associate Professor Bu says.
In its upcoming third phase, the project will develop an ESG scoring model for all US-listed public companies, which Futu plans to integrate into its trading platform. Once implemented, ESG scores will be disclosed to a randomly selected group of Australian users to evaluate how transparency influences retail investors’ portfolio choices. Based on the pilot results, the ESG disclosure feature is expected to be rolled out to all users in 2027, with the aim of promoting more sustainable investing practices among retail investors.
ESG scores were initially disclosed to 2,000 randomly selected Australian users, resulting in a notable increase in their portfolio ESG scores within one month.
This will be expanded so ESG disclosures are available to all users by January 2025 to further promote sustainable investing practices among retail investors.
Encouraging a societal shift towards sustainable investing is hoped to promote wider global sustainability by driving positive change in investment behaviours and practices and setting a precedent for future initiatives in the field.