Abstract
In this paper, we conduct a stated-choice experiment with German retail investors to examine how labeling sustainability information as financially material or immaterial influences investment decisions. Results reveal a strong non-pecuniary preference for sustainability. However, emotional affect leads some investors to erroneously project sustainability information onto firms’ financial performance, regardless of financial materiality. When poor sustainability ratings are labeled as financially material, investors demand further an additional return premium, indicating a misinterpretation of these labels as financial indicators. This bias is particularly evident among investors who incorporate sustainability for pecuniary reasons in the experiment but do not use such information in real-life investing. Our findings suggest that while sustainability labels can guide investor behavior, they also risk distorting financial expectations. This underscores the need for careful design in sustainability disclosure practices and better investor education on the implications of sustainability information.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
