OSC study shows ESG ratings significantly impact fund choices for retail investors

The report, titled ‘A Behavioural Insights Analysis of the Effects of Environmental, Social, and Governance Factor (ESG) Disclosure and Advertising on Retail Investors,’ highlights the challenges faced by retail investors in evaluating the ESG attributes of investment funds.  

These challenges stem primarily from the lack of standardized ESG definitions, variable measurements, and discrepancies in rating and ranking systems.   

Key findings from the study include the significant influence of ESG ratings on consumer choice, only surpassed by a fund’s past performance. Investors showed a stronger preference for funds with star ratings over those with letter grades.  

Interestingly, some investors preferred funds without ESG ratings over those with specific ratings, suggesting that ESG ratings can sometimes serve as a deterrent rather than an incentive. 

  The OSC identified two main investor segments: values-driven investors and financially driven investors.