Do investors care about impact?
Florian Heeb, Julian F. Kölbel, Falko Paetzold and Stefan Zeisberger published in the Review of Financial Studies their findings regarding the underlying drivers of sustainable investment.
Their main observations include:
- Sustainable investment is driven by emotional experience. To better understand the market and design policies, financial models and regulators alike should take into account how it influences investors' willingness to pay.
- Investors value whether an investment is sustainable, but do not derive utility from optimising their impact. Put another way, they are willing to pay for investment with some impact, but unlikely to pay more for more impact.
- These conclusions are important for regulators, as sustainable investment preferences may strike an equilibrium on « light green » products with no incentive to design ambitious sustainable products.
- Labels play a major role, as investors make binary decisions driven by heuristics. If product A holds a label and B does not, A should be better, demonstrating why labels must actually reward real-world impact.
The measured willingness to pay for impact is inconsistent with investors' claims to tackle major societal challenges, incentivising them to create products that offer a « warm glow » rather than actual impact.