The Official Training Manual (OTM) explains that investor psychology affects ESG adoption and portfolio decision-making. It references behavioral finance evidence:
“Individual investorsexhibit the strongestloss aversion, tending to overreact to downside risk and short-term volatility. This behavioral bias often leads to under-diversification and lower risk-adjusted returns.”
In contrast, institutional investors such as sovereign wealth funds and foundations usually have structured mandates, longer investment horizons, and lower behavioral biases, making them less loss-averse. The OTM further highlights that individual investors’ sensitivity to short-term losses can influence their ESG preferences — often favoring values-based exclusions rather than long-term integration.
This clear differentiation aligns withoption B, identifying individual investors as the most loss-averse investor group.
????Reference:2021-Final-Book.pdf, Chapter 9 — Investment Mandates, Portfolio Analytics, and Client Reporting (Investor Behaviour and ESG Preferences section).
