Do investors really care about sustainability impact?

– Although investors have a substantial level of interest in sustainable investments, they don’t pay more for an investment with more impact.
– Investors don’t optimize the impact of their investments but instead optimize the “warm glow” they gain from investing sustainably.

A lot of people out there are dubious about whether corporate – and institutional investors – really care about impact when it comes to climate and sustainability? Here is a study – entitled “Do Investors Care About Impact?” – that delves into that topic. Here is the study’s abstract:

In a framed field experiment, we assess how investors’ willingness-to-pay (WTP) for a sustainable investment responds to the investment’s impact in the form of CO2 emission savings. We find that, although investors have a substantial WTP for sustainable investments, they do not pay more for an investment with more impact.

This finding also holds for a unique sample of dedicated impact investors. We further show that investors’ WTP responds to impact when they can directly compare several investment options. Yet, the response is far from being proportional to the level of investments’ impact. Our findings indicate that the WTP for sustainable investments depends strongly on the presented choice set and the emotional experience of choosing a sustainable option.

Further, our findings suggest that investors do not optimize the impact of their investments but instead optimize the “warm glow” they gain from investing sustainably, which has important implications for modeling the overall impact of sustainable investing on the economy.

Someone posted this note as a comment on the Florian Heeb’s note about the study:

Quite simple: ex-ante reputational…yes please; verifiable ex-post…mmh….I’ll pass! It’s all about cost! Many investors are trying to square the circle by looking at how green can they become without spending more or changing anything in their investment attitudes. ESG integration is the new year’s resolution to run a full marathon. Impact investing is actually crossing the finish line. For many investors, the resolution is good enough because you can repeat it every year without material ramifications.