Get Real! Individuals Prefer More Sustainable Investments

Research Retrieved: November 2018
Retrieve the paper from the SSRN


Many institutional investors and particularly pension funds using a defined-benefit scheme have to invest on behalf of their clients. Do these clients want to put their pension savings on the table to promote sustainability? This paper answers this question in a large-scale field experiment (n = 3,256). The pension fund in this study gave its members a real vote for more or less sustainable investments. The authors find that 66.7% of the participants favor to invest their pension savings in a sustainable manner. This choice is driven by social preferences. Neither financial beliefs, confusion, nor a lack of information serve as explanation. Institutional investors benefit from taking their clients’ social preferences seriously, with consequences for asset prices and the fulfillment of the United Nations Sustainable Development Goals.

Key Findings

1. Strong social preferences drive sustainable investing

a) A scientifically validated measure of social preferences is positively related to the choice for more sustainable investments.
b) People who voted for a political party which has a stronger sustainability agenda are more likely to support more sustainable investments
c) The choice for sustainable investments is not influenced by how the question was asked (so-called default effects)
Thus: people have a strong desire to invest more sustainably

2. Financial beliefs do not drive sustainable investing

a) Even among those who expect sustainable investing to yield lower returns, the majority (60.8%) prefers to invest more sustainably.
b) People do not like uncertainty and therefore should shy away from investing more sustainably. However, the study finds that the majority of participants (62.6%) who do not know what returns to expect still prefer to invest more sustainably.
c) A significant share even accepts lower financial returns in exchange for increasing the share of sustainable investments
Thus: people want to invest more sustainably regardless of their return expectation.

Practical Relevance

How should pension funds manage their fiduciary duty regarding sustainable investments? How should they decide on behalf of their clients? This paper offers a simple toolbox for institutional investors to cater to the social preferences of their clients. Previous findings show that investors generally value sustainability in their investment decisions. These findings, however, provide aggregate-level information and are therefore no help to investors who try to infer how their own clients think about sustainable investing. In particular, if people’s pension is at stake, choices could be very different. The authors of this paper show that social preferences play an important role in delegated investment decisions and thus deserve a bigger focus similar to how clients’ risk preferences are already taken into account. The criticality of social preferences can be observed in Europe. The European Commission has even decided to introduce a formal requirement that “Investment firms… [should ask retail investors] about their preferences for sustainable investments”.[1] This paper provides a scientifically valid and easy-to-implement strategy for institutional investors to elicit their clients’ preferences about sustainable investing.

[1] See