Faculty of law blogs / UNIVERSITY OF OXFORD

Do Retail Investors Value Environmental Impact?


Christoph Siemroth
Senior Lecturer at the University of Essex
Lars Hornuf
Professor of Business Administration at the University of Bremen


Time to read

3 Minutes

Climate change is increasingly seen as a major societal problem. To address the problem, enormous financial resources are required and the capital market plays a central role in the financing of green technologies, products, and services. If the financing is inefficient, or financing constraints prevent better technologies from being developed and socially desirable projects from being implemented, then the goal to limit climate change and reduce greenhouse gas emissions might not be attainable. Indeed, the conditions in capital markets directly determine the cost of addressing climate change. For this reason, it is important to understand how investors evaluate investments in green projects that have a positive environmental or social impact, compared to conventional projects that have no or even a negative environmental or social impact.

In our paper, we study investors from a group of crowdfunding platforms that offer both green investment projects and conventional investment projects. This allows us to investigate why investors choose green projects over conventional projects. The main question is whether investors invest because they believe green projects are more profitable in expectation, or because they also have a preference to achieve a positive environmental impact. The platforms we study are part of the Austrian ROCKETS Group, which consists of multiple crowdfunding platforms with specialization in green and real estate investment projects as well as small firm finance.

Testing the hypothesis that investors value environmental impact is difficult, because measuring the true preferences is not straightforward. We address the potential problem with self-reporting and the social desirability bias by conducting an online ‘lab in the field’ decision experiment. This experiment allows us to use an incentivized preference elicitation method from the lab, but with investors from the field, to find out how much they truly value environmental impact when making investment decisions. In the decision experiment, investors can either receive a higher expected investment return by choosing a voucher to be used for non-green investment projects; or, instead, they can give this money to an environmental cause, thus achieving environmental impact, but getting no higher investment return.

About 21% of investors choose the voucher independent of the donation amount to the environmental organizations, and hence reveal they do not value environmental impact. At the other extreme, about 14% of investors are willing to give up the voucher for any donation amount, and hence reveal a very strong preference for environmental impact. The remaining 65% are willing to give up the voucher only for a sufficiently large donation, with a large variation in the indifference point. These numbers suggest that a large portion of investors might be willing to accept slightly lower investment returns from green projects if the environmental impact is sufficiently large. We asked all investors for their willingness to donate to carbon offsetting and Greenpeace and found that the former is valued more by investors than the latter.

We further find that investors invest more in green projects if they believe green projects to be more profitable and if they attach more importance to environmental impact. Consequently, investors who are more willing to give up higher investment returns via the voucher for environmental impact are also those who invest more in green projects. These findings are consistent with investors having a preference for environmental impact—which is fulfilled by investing in green projects—and not merely with investing because they expect better returns from green projects.

We additionally elicit a measure of the importance of social impact for each investor in the experiment. Consequently, besides the two environmental organizations, we also ask for each investor’s willingness to donate to the Red Cross. A donation to the Red Cross captures social but not environmental impact. We find that investors on average value environmental impact slightly more than social impact in the experiment, ie, are more willing to give up the voucher for a donation with environmental impact than for social impact.

Finally, we explain the share of green investments with expected returns, the significance of the environmental impact, and the significance of the social impact using regressions. We find that both return expectations and importance of environmental impact—but not the importance of social impact—are significant predictors of the share of investments in green projects. That is, investors who value social impact more do not invest more in green projects, holding return expectations and importance of environmental impact constant. This suggests that investors choose green projects because they are optimistic about the expected returns and because they want to achieve environmental impact, but they behave as if green projects do not have a positive social impact beyond the environmental impact. Hence, unlike findings in earlier studies, the motivation to invest in green projects appears to be more consistent with a desire to achieve environmental impact rather than with social preferences.


Christoph Siemroth is Senior Lecturer at the University of Essex with research interests in behavioral / experimental economics, financial economics, and organizational economics.

Lars Hornuf is a chaired Professor of Business Administration at the University of Bremen, Germany, specializing in the areas of financial services and financial technology.


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