NSM Focus | Green investors benefit from clarity
Investors prefer green investments. They are also prepared to pay for them according to research by Professor of Financial Economics, Stefan Zeisberger. However, it is often unclear exactly how green an investment is. A classification system could help.
“We know from previous research that people are prepared to fund sustainable investments,” says Zeisberger. “However, there are many different kinds of sustainable investment: from light green to dark green. We asked ourselves: do investors see a difference? If so, what do they prefer and are they prepared to pay more for investments that have a substantial sustainable impact?”
Zeisberger, together with the Vereniging van Effectenbezitters (VEB), set up a ‘framed field experiment’. In the experiment, more than 600 experienced VEB-investors were given the choice between a regular and a green investment fund. For some, it was a light green fund, while others, a dark green. Additionally, ten participants received a thousand euros to invest each. “So it was real money that the participants could receive real returns on.”
What did it show? Investors were willing to pay for sustainability, but there was not a single difference between the people who chose between regular and light green investments, and those who chose between regular and dark green ones. Zeisberger: “When the participants chose between the three foundations – regular, light green and dark green – we saw a higher level of investment for the dark ones. However, there was only a marginal difference.”
To be on the safe side, the same choices were also presented to over one hundred professional investors. The result was the same, says Zeisberger. “Investors are willing to pay for a sustainable fund. But it seems that it does not matter how green a product is as long as it ‘feels’ green.” In this way, banks and asset managers are hardly encouraged to offer investment products that have true sustainable impacts and there is a danger of greenwashing.
A classification system could solve this, according to Zeisberger. He points to the financial institute Morningstar, which has devised its own classification system, whereby funds can be awarded one to five globes: the more sustainable, the more globes. “Investors seem to prefer the funds with five globes. So you can see: if it is easy to compare, people choose the more sustainable investment.”
According to Zeisberger it would be even better if the government were to introduce a classification system. Such a system would have to be simple and clear, similar to energy labels for electronic appliances, for example. This would be a job for the European Union. I am talking to both the EU and the Financial Markets Authority. They are extremely interested in the results of our research, recognise the danger of greenwashing and want to help prevent it.
According to Zeisberger there is a lot to be gained from a classification like this. “If we really want to reach the development goals set by the United Nations and the aims set by the Paris Agreement, we have serious work to do here. A lot of money goes into investment funds. A good classification system could have a big impact in terms of sustainability.”