Do investors care about impact? “They pay for ‘the warm glow’, not for more impact”

It’s known that investors are willing to make sustainable choices. But are they willing to pay more for sustainable investments with more impact in the form of CO2 emission savings? Unfortunately not, behavioral finance scientist Stefan Zeisberger says: “Consumers pay for an investment that feels green. Not for a truly greener one.” How alarming are the outcomes of Zeisberger’s research - in the light of the Sustainable Finance Disclosure Directive (SFDR), MiFID II changes and the EU Ecolabel regime? And what is Zeisberger’s advice for banks offering and promoting sustainable products whilst avoiding greenwashing?


Why do investors, even finance professionals, often make sub-optimal decisions? And what can we do about it? Behavioral finance offers many answers.  Zeisberger: “My research aims to better understand investor behavior and to improve financial decision making of individuals and corporations. Stefan Zeisberger is Professor of Financial Economics at the department of Economics and Business Economics at Radboud University. Zeisberger also is Professor for Fintech - Experimental Finance at the Department of Banking and Finance of the University of Zurich.

Zeisberger: “In ‘Do investors care about impact’ we studied how investors’ willingness-to-pay (WTP) for sustainable investment products respond to the impact of these products. In a framed field experiment we assessed in an online survey how investors’ WTP for a sustainable investment responds to the investment’s impact in the form of CO2 emission savings. We analyzed the behavior of experienced (retail) investors and also dedicated impact investors. The first investor pool was provided by the Vereniging van Effectenbezitters (VEB).”

Feeling green

What are the findings of ‘Do investors care about impact’? Zeisberger “We found that, although investors have a substantial WTP for sustainable investments, they do not pay more for an investment with more impact. In other words, we did not find a significant difference in the WTP between a ‘light green’ product and a ‘dark green’ product. Neither by retail nor dedicated impact investors. What can be the reason? We saw that investors do not consider dark green products as better, riskier or probably more successful.  What we did find, is that for investors light and dark green products feel the same. A sustainable investment, independent of its actual impact, seems to give investors a ‘warm glow’. That’s alarming, because we would love to see that it makes people feel better to invest in a ‘dark green’ product that can demonstrate more impact. To even help investors in our study to assess the level of impact we defined ‘sustainability’ as a clearly measurable CO2 emission savings.”

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Stefan Zeisberger, Professor of Financial Economics department of Economics and Business Economics Radboud University, also is Professor for Fintech - Experimental Finance Department of Banking and Finance University of Zurich

Lack of expertise and experience

The upcoming MiFID II changes mandate financial institutions to also ask investors  for their ESG sustainability preferences. How useful could that be, in the light of Zeisberger’s study? Zeisberger: “I think asking for their preferences is not such a bad idea. While there is a lack of expertise and experience, that is also true for example for how much financial risk someone wants to take. At least most people seem to have an relatively clear opinion on sustainability and whether they would like to invest according to certain ESG criteria or not. Of course, there is a lot of work to be done on that matter. We will need for example clear ESG criteria and better ESG measurements on product level. Nonetheless, I think there is no harm in asking clients in the short term for their preferences, even if these preferences will prove difficult to translate into a product at the beginning. Potentially investors will care more about ‘light green’ vs. ‘dark green’ if they see the increasing impact of the damage to the globe.”

SFDR and/or EU Ecolabel?

According to the study, consumers do not seem to care that much about impact and they lack on expertise. How useful would the Sustainable Finance Action Plan disclosures (SFDR) be, since SFDR is only about transparency and is not a ‘green label’? Zeisberger: “We have to be careful not to make SFDR a mostly legal matter. Insights from behavioral finance are deeply needed. The upside of SFDR is that any kind of transparency on sustainability will help. It could be that with more transparency the WTP for “dark green” products increases. This must be real transparency: prospectuses must be easy to understand for people. Otherwise, they will not prove to be very effective. The EU Ecolabel on the other hand is a set of rules which can be given to a product if it is compliant to those rules. I think there is room for both SFDR and the EU Ecolabel, since the investors differ in their interest and financial literacy. Retail clients for example are used to ecolabels on products, like on refrigerators or TVs. But NGO’s or institutional investors who can put pressure on companies for more sustainability, might be more interested in more detailed information in the way a company works. SFDR can give that transparency.”


Based on the outcomes of Zeisberger’s research, he expresses some concerns for ‘greenwashing’ by the financial sector. What is Zeisberger’s advice for banks offering and promoting sustainable products whilst avoiding greenwashing? “What we see, is that investors move towards more sustainable investments if the sustainability rating is presented in an easy to understand way, for example by symbols or ratings with a serious benchmark. Defining what these represent, is a challenge for financial market participants to avoid greenwashing. One idea can be to have a label that comes from a credible institution, like the regulator or the government/EU. Banks could then use that and it would be more credible.”