Recently, we have seen a significant increase in the number of day traders and growth in online trading volumes. While often criticised for their short-term outlook, day traders are a crucial part of the market as they inject significant liquidity and a "corrective nature" concerning wild price swings. So, with institutional investors and corporations moving to the ESG standard, will private investors buy in?


What is ESG?


Day traders looking for the next big price swing will undoubtedly have come across ESG. This stands for "Environmental, Social and Governance” and will become an integral part of the investment decision-making process. It is based on the following principles:-


• Environmental - this element relates to a company’s impact on the environment and is associated with phrases such as carbon footprint, climate change policies and renewable energy usage.
• Social - this subject takes in various issues relating to gender, equality, diversity and ethical supply chains.
• Governance - focused on how a company is managed; this element of ESG monitors executive compensation, shareholder rights, diversity of directors and relationships with regulatory bodies.


The increase in online trading volumes has given those pushing the ESG agenda a perfect platform on which to "educate" and involve day traders and longer-term investors. It is essential to differentiate the investment profile of a day trader, often online, trading many hours each day, against private investors with a longer-term outlook.


Day traders and ESG-compliant companies


In reality, day traders will chase any breaking trends, long and short opportunities, and many will consider a vast range of potential investments. In addition, the range of online tradingservices means you can literally buy and sell in any market throughout the day or night. So when it comes to ESG-compliant companies, day traders will certainly consider them, so long as they can see a turn!


The growing influence of ESG will feature more in the mindsof day traders going forward. If this influences broker recommendations and long-term investors, they will need to consider it. However, there is a more profound subject to consider concerning ESG and short, medium and long-term investment. Many banks now demand that their clients are ESG appreciative, and in the future, we may see minimum scores required to access specific financial services.


Without being flippant, day traders are not necessarily interested in the underlying investment, but many will have an independent view of the environment, social interaction and corporate governance. Will ESG become part of their thought process going forward? Traders may be forced to consider it whether they like it or not!


Longer term investors and ESG-compliant companies


While ESG scores are not yet heavily promoted in the UK, they have a growing presence in the US. Whether using online trading facilities, or advisory/discretionary services, we find that US trends will eventually find their way to the UK. To put this into perspective, more and more companies in the US are striving for high ESG ratings to attract investors. For example, the following companies have been identified as promising ESG trading stocks in the US:-


• American Express
• Microsoft
• Home Depot
• 3M
• Salesforce


Probably not the companies you would have first thought of concerning ethical investment? However, this is not a recommendation; we are simply highlighting how the US investment community, day traders, online traders and offline clients are being bombarded with ESG literature.


Liquidity is the key


On the flip side, let’s look at ESG compliant stocks from a different angle. The growing corporate global focus of this phenomenon may lead to greater liquidity in ESG-compliant stocks. This, in turn, will attract day traders and long-terminvestors, tapping into the online trading community. So, whether or not you believe that ESG principles should play a prominent role in investment decisions as we advance, it is happening. Governments and regulators are on board, and investors will need to follow suit.

Back to News