Abstract
We examine survey data on ESG beliefs and preferences from a large sample of retail investors, linking their responses to detailed administrative data on their investment portfolios. The survey gathers investors’ expectations of long-term returns from ESG equity investments and inquires about their motivations for choosing ESG assets, if any. Our analysis uncovers four key findings.
First, investors generally anticipated that ESG investments would underperform relative to the broader market. Between mid-2021 and late 2022, the average expected 10-year annualized return for ESG investments was 1.4% lower than the overall stock market.
Second, there is significant variation among investors in both their return expectations and their reasons for investing in ESG assets. About 45% of respondents saw no compelling reason to invest in ESG, 25% were primarily driven by ethical considerations, 22% cited climate hedging as their main motivation, and 7% were motivated by potential returns.
Third, individuals’ stated motives for ESG investing were closely aligned with their actual investment behavior. Those who cited ethics as their primary motivation had the highest levels of ESG assets in their portfolios.
Fourth, financial factors play a critical role, independent of other motives. We find that investors who expect ESG investments to outperform the market are more likely to hold significant ESG assets, even among those whose primary motivations are ethical or related to climate hedging.
Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Zhenhao Tan, Stephen P. Utkus,
Xiao XuNBER Working Paper No. w31114
