Investment Barriers and Labeling Schemes for Socially Responsible Investments

Abstract

Given the increasing role of socially responsible investing (SRI), but still limited participation of individual (i.e. small, retail) investors, the objective of this study is twofold: (i) We aim to identify investment barriers regarding SRI for individual investors and analyze to what extent these barriers vary across different investor groups. (ii) We analyze to what extent sustainability or transparency labels can help to overcome these barriers. To this end, we empirically analyze data from a survey and a stated choice experiment for a broad sample of financial decision makers in German households. The results suggest that a considerable amount of respondents can imagine to invest in a socially responsible manner, which is promising for policymakers and practitioners who aim to foster sustainable development and SRI. However, too high information costs are a severe barrier for potential future investors and a considerable share of respondents distrusts providers of socially responsible investment products. Banks, who could help to solve this problem, appear not to fulfill their role as intermediaries. But we find that labels might serve as a complement to banks. Especially sustainability certificates that confirm the consideration of sustainability criteria could decrease information costs and overcome at least some barriers for some investor groups, particularly for new investors. However, the results also suggest that a certain degree of basic knowledge and trust in providers of socially responsible investment products is required before labels work efficiently.

The Pricing of Green Bonds: External Reviews and the Shades of Green

“…Thus, a second-party opinion, especially one with a clear evaluation conclusion in terms of a shade of green, can be one channel for investors to reduce information search costs aimed at confirming the greenness of a bond, reduces the uncertainty that the respective bond is reliably and consistently green, and thus motivates investors to buy the bond at higher prices, i.e., lower expected returns. This major finding is in accordance with the recent finding that retail investors, especially socially responsible investors, have significant preferences for socially responsible equity funds with certification and transparency logos (Gutsche and Zwergel 2020).…”

The investor in ESG mutual funds

“…Among the sociodemographic characteristics, it is worth mentioning the fact that age has a non-linear effect, while men are less likely to invest in SRI funds. These results are aligned with Junkus and Berry (2010), among others, who find that SRI investors tend to be younger and female, and with Nilsson (2008), Cheal et al (2011 and Gutsche and Zwergel (2020), who find a positive link between educational degree or financial literacy and involvement in SR investing.…”

Impact investments, evil investments, and something in between: Comparing social banks' investment criteria and strategies with depositors' investment preferences

“…Compared to other forms of socially responsible investment (SRI), relatively few social and environmental projects have been financed through customer deposits to date, and such deposits have been primarily facilitated by a few specialised banks (Heinemann et al., 2018), which are called social, ethical, green, sustainable, or alternative banks (Chew et al., 2016; Cornée et al., 2016; Goyal & Joshi, 2011). This might explain why the scientific literature on SRI has predominantly focused on institutional investors in capital markets (e.g., Benson et al., 2006; Humphrey et al., 2016; Von Wallis & Klein, 2015, for a literature review) or private (retail) investors of SRI funds (e.g., Gutsche & Zwergel, 2020; Sandberg & Nilsson, 2015; Wins & Zwergel, 2015, 2016). Few research attempts have considered SRI in credit markets, such as social banking and social depositors.…”