To switch from dirty energy to cleaner options, we need to invest more in eco-friendly choices worldwide, and big investors are crucial for this shift.
A recent study from the University of Sydney Business School and the University of Tasmania found that when it comes to encouraging “green investments” among pros, upbeat messages work better than scary ones. This discovery could potentially impact a whopping $3.6 trillion.
“One major challenge for responsible investing is that it fails to register as a moral imperative because it does not create a strong emotional response, and no-one is acting intentionally to harm anyone,” the researchers explain.
“In taking this different approach, emphasizing the benefits of sustainable investing, we can connect the analytical facets of investment to our human bias towards hope for greater action around climate change.”
Green investing
The study tested how 335 big investors reacted to four types of messages promoting environmentally responsible investing. After that, it looked at where they put their money for environmental, social, and corporate governance (ESG) assets.
Turns out, those who got the positive message ended up investing 3-4% more in ESG assets compared to those who got different messages. This shows that a positive approach can make a real difference in getting institutional investors on board with sustainable investments.
“We demonstrated that framing sustainable investment more optimistically, with an emphasis on the temporary costs compared to the permanent future benefits, can overcome our natural bias toward inaction,” the researchers explain.
“The results are particularly striking because it shows that optimistic climate communication is effective on highly analytical professional experts with an average of 19 years of experience in investing. The assumed knowledge is these sophisticated investors can’t be nudged, but we observed a statistically significant increase in environmentally conscious investment decisions.”
Clean transition
Shifting away from fossil fuels requires a big global move toward sustainable investing, especially for assets that are managed by institutions.
Institutional investors, who handle a whopping $98.4 trillion globally, are key players in moving money away from fossil fuels. They have a major say in deciding how much of their managed assets go into responsible investments.
To see if the way a message is framed affects investor choices, researchers conducted a study. They gave participants a task where the only difference was the introduction. The optimistic introduction focused on the lasting benefits and increasing value of low carbon emission assets. The other introductions highlighted the risks of fossil fuel assets or used an expert’s viewpoint.
Considering the massive value of professionally managed assets globally, which is $98.4 trillion, the impact seen in this study could mean a massive shift of $3.6 trillion in how assets are allocated globally.
“Communicating decisions around sustainability in financial settings requires a human-centered approach,” the authors conclude. “Instead of focusing on the consequences of global warming, investment decision messages could incorporate the permanency of future benefits such as flourishing ecosystems, improved longevity and health, shared economic prosperity and greater global security.”
