Abstract
A long theoretical literature since the seminal work of Merton (1969, 1971, 1973) suggest that wealth owners should invest in all assets whose returns covary with state variables. A recent literature, see Engle et al. (2020) and Pedersen at al. (2021) has provided empirical support to the idea that ESG (environment, social, governance) characteristics are relevant state variables. It follows that wealth owners should invest in diversified portfolios and would do financially bet by doing socially better if their portfolios optimally included assets with ESG characteristics. Basic financial theory is only partially applied by investors: the puzzle of investors ignoring large parts of traded assets, e.g. stocks, has been recognized by the literature, see Haliassos et al. (1995). A new puzzle is due to investors ignoring ESG assets in the sense of not investing any wealth in such assets, see Giglio et al. (2025).
In terms of academic literature, our contribution is an useful addition to the recent survey-based literature that looks at the impact of education, both financial and sustainable, on ESG investing, see Filippini et al. (2024a, 2024b). Differently from this literature we try to understand what specific elements of ESG investing people may be confused about, which is a precondition for taking measures against illiteracy. Also, we provide simple information that is independently produced by a University and not by financial advisors, so our results are a complement to those of Anderson and Robinson (2022).
While the available empirical evidence suggests (Krueger, Sautner, and Starks, 2020; and Ilhan et al. 2023) that engagement on climate risk and its disclosure are important channels through which institutions seek to address climate-related risks. Hoepner et al. (2024) suggest that such engagements can offer substantial benefits for investors by reducing exposure to downside risks.
In terms of financial knowledge and access to information, Anderson and Robinson (2022) show that green financial engagement is stronger in settings where financial literacy is higher or where informational hurdles are lower. Seifert et al. (2024) study the impact of financial advisors on portfolio choice and find that both financial return information and ESG impact information stimulate ESG investment (they also find that different ways to elicit investors’ ESG preferences are not relevant for financial choices).
Filippini et al. (2024a) survey a large sample of Swiss households to measure sustainable finance literacy, and find that Swiss households, which are generally highly financially literate by international standards, exhibit low levels of sustainable financial literacy compared to the current working definitions of sustainable finance. Moreover, despite its low level, knowledge about sustainable finance is a significant factor in the reported ownership of sustainable products. The empirical results also show a relatively low level of awareness. Filippini et al. (2024b) studies the impact of an educational program on Sustainable Finance Literacy (SFL) and the impact of this program on sustainable investment decisions using a randomized controlled trial (RCT) and an incentivized choice experiment. Findings demonstrate that the SFL educational treatment significantly improves literacy. Participants exposed to the SFL program were more likely to invest in highly sustainable funds by 6 percentage points and less likely to choose less sustainable options with magnitudes between 3 and 2.5 percentage points. The treatment effects increased by up to one half among investors with pre-existing green attitudes. In addition, the paper provides suggestive evidence that a higher SFL leads to more accurate sustainability perceptions and reduces the tendency to chase high past returns. However, the mechanisms leading to investing in ESG are less well understood.
Differently from these papers, we focus on using a combination of survey questions and videos to measure the impact of education, and do not limit our attention to regulatory definitions of sustainable investing or knowledge of general definitions of sustainability but rather want to understand the impact of education on the hedging properties of ESG risks, the reasons why ESG/ SRI investing may change capital allocation and account for positive and negative externalities, the motivations for short- and long-run over/ underperformance of ESG investing.
To this end, we conduct a randomized control trial with a representative sample of about 10,000 retail investors in Italy offering monetary incentives to watch video pills designed to foster sustainable financial literacy and improve willingness to learn, financial attitudes and behavior. At the end of the survey we administer a treatment and randomly assign each respondent to one out of three videos, named A, B and C. The first two videos A and B discuss issues like the risk and average return of ESG/ SRI investments from the point of view of a simple description of the logic associated with financial theory, and the potential effects of ESG/SRI investments in favouring companies that are more sensitive to social and environmental issues. Video C is a placebo video, with a general description of what is Artificial intelligence
In addition to studying the relative effectiveness of these video pills, we are interested in heterogenous treatment effects by gender, baseline financial knowledge / education, and socio-economic background.
The results of our study are expected to be contributions to the literature on effective and scalable financial education policies and to the literature on sustainable finance and financial investments more generally.