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The term “retail investors” may conjure images of overflowing Target carts (really, who can resist their dollar section?), but this term means something very specific in the financial world. Basically, it’s a non-professional, individual investor (like you, as opposed to an institution like Vanguard or Fidelity) investing for themself and not an organization. Last month, individual investors poured a record $27.9 billion into the US stock market, showing that this sector is a powerful market force.
But retail investing in ESG is still relatively new. While Morningstar reported in January that money going into US Sustainable Funds in 2020 more than doubled the total for 2019 (and was nearly 10x the total in 2018), it is still early days. Yahoo Finance recently shared a report that shows ESG stocks are still finding their footing with millennials and Gen Z retail investors. Only a quarter of the survey participants reported owning ESG stocks, while 32% said they don't even know what an ESG stock is. Not to worry, as an FWIW reader, you won’t be part of that 32%. We’ve got you covered (your friends too, if you forward this newsletter along, hint hint).
ESG as risk management
One thing investors never want to wake up to is a breaking news alert that a company they invested in is embroiled in a scandal due to shortsighted management or planning. While we don’t have a crystal ball that will predict every corporate misstep, many banks, insurance companies, and major investors turn to ESG stocks to guard against investment risk. And there is no reason you shouldn’t consider following their lead.