Can a responsible investing offering make a difference and encourage savers to invest in equities?
This is precisely the question we have tried to answer in our recent research (Brière and Ramelli, 2021). We analysed the impact of introducing solidarity funds to the funds’ menu offered in employee savings plans for nearly 900,000 employees in 6,500 companies.
Solidarity funds offer a particularly interesting framework for analysis, because since a 2008 law was introduced in France,6 they are mandatory in the selection of funds offered by companies to their employees. They exist in several forms: equity, diversified or bond funds. These funds invest in companies of a social and solidarity nature (promoting access to housing, employment, care, education, the preservation of natural resources, etc.), which are given this label by an independent organisation, Finansol.
Our work shows that when solidarity equity funds are offered to savers, they invest more in equities than when this offering is not available (to the order of 2%, in absolute value, compared to an average allocation of around 12%, i.e. a relative increase of 17%). The addition of a solidarity fund in the funds’ menu is even associated with an absolute increase of almost 7% in the equity allocation of new investments made during the year, compared to the existing allocation. Conversely, we find that adding a conventional equity fund has no impact on the overall allocation of individuals. Young people were particularly sensitive to the introduction of solidarity funds in the offering. Our estimates show that a 30-year-old has invested an average of 3.2% more than a 50-year-old.
Two reasons can explain the difference in reaction to the inclusion of responsible versus conventional equity funds. The first possible explanation is that investors consider responsible funds will perform better than traditional funds, an unlikely assumption in the case of funds combining a dual objective, that is both financial and societal. The second possible explanation is that responsible investing makes equities more attractive to certain categories of investors who, for cultural or social reasons, would not have invested in equities. Thus, our results confirm that the decision to invest in equities is not only linked to financial factors, but that it can also be influenced by the supply of funds, especially responsible ones. In a context where the low participation of individuals in the equity market worries many countries, this result is potentially important and encouraging.
1. Eurosif et US SIF (2019) data.
2. Steven Maijoor: “Building the EU Capital Markets Union while Fostering Global Financial Markets“, ASIFMA Annual Conference in Tokyo, ESMA, October 2019.
3. Charles Schwab, TD Ameritrade, Etrade, see https://www.cnbc.com/2020/05/12/young-investors-pile-into-stocks-seeing-generational-buying-moment-instead-of-risk.html
4. Youth favourite trading app Robinhood registered 3 million new accounts in Q1 2020.
5. Kaustia and Torstila (2010) have shown that in Finland left-wing voters invest less in equities. These facts are not new. Shiller (1984) cites a 1954 survey of the attitude of New York Stock Exchange investors, seeking to understand the reasons for the low participation in the stock market. In addition to the lack of information available, another key factor cited was a "vague sense of prejudice against the stock market", with participation in the stock market not being consistent with the overall values of some of the respondents.
6. Loi de Modernisation de l'Economie, 2008-776, August 2008.
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