Is Sustainable Investing Sustainable?
Paper Session
Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Samuel Hartzmark, Boston College
Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution
Abstract
We study the asset market for pollutive plants. Firms divest pollutive plants following environmental risk incidents. However, pollution levels do not decline after divesting. The buyers are firms facing weaker environmental pressures, with supply chain relationships or joint ventures with the sellers. The sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher ESG ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution levels and with substantial gains from trade.Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries
Abstract
We study why investors are willing to pay higher fees for sustainable investments using large-scale online experiments with individual investors across five European countries. We focus on two potential explanations - investors’ social preferences and the impact of limited financial literacy. Our findings indicate that, across all countries, social preferences significantly contribute to the share of sustainable investments in investment portfolios. However, social preferences do not significantly influence investors’ sensitivity to fees. Instead, investors with weaker financial literacy are more likely to pay higher fees, because they pay more attention to fees and (wrongly) believe funds with higher expenses outperform after fees. These results have important implications for financial regulation.Four Facts about ESG Beliefs and Investor Portfolios
Abstract
We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked toadministrative data on their investment portfolios. The survey elicits investors’ expectations of long-
term ESG equity returns and asks about their motivations, if any, to invest in ESG assets. We doc-
ument four facts. First, investors generally expected ESG investments to underperform the market.
Between mid-2021 and late-2022, the average expected 10-year annualized return of ESG investments
relative to the overall stock market was −1.4%. Second, there is substantial heterogeneity across in-
vestors in their ESG return expectations and their motives for ESG investing: 45% of survey respon-
dents do not see any reason to invest in ESG, 25% are primarily motivated by ethical considerations,
22% are driven by climate hedging motives, and 7% are motivated by return expectations. Third, there
is a link between individuals’ reported ESG investment motives and their actual investment behav-
iors, with the highest ESG portfolio holdings among individuals who report ethics-driven investment
motives. Fourth, financial considerations matter independently of other investment motives: we find
meaningful ESG holdings only for investors who expect these investments to outperform the market,
even among those investors who reported that their most important ESG investment motives were
ethical or hedging reasons.
Discussant(s)
Lauren Cohen
,
Harvard University
Elisabeth Kempf
,
Harvard University
Parinitha Sastry
,
Columbia University
Luke Taylor
,
University of Pennsylvania
JEL Classifications
- G0 - General