Working Paper: Do investors care about impact?
In a new working paper (i.e. work in progress, cite at your own risk), we find that investors pay for impact, but they pay about the same for a low impact fund and a high impact fund that has 10 times more impact.
This creates a problem for the development of ESG products with impact: If your customers don’t pay more, why offer more?
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.