The sustainable investor for a changing world

FORWARD THINKING | Article - 4 Min

Sustainable preferences differ across Europe

What motivates retail investors when it comes to sustainability-related investing? And do the factors that influence their decision-making vary from country to country or at other levels such as financial literacy? We believe the answers have significant implications for the development of sustainable finance products and asset pricing.

This article is part of our series on current academic research into a range of sustainability-related investment topics. The papers discussed were presented at the latest annual Global Research Alliance for Sustainable Investment and Finance conference. We believe in science-led sustainable investment. Partnering with academic researchers can add value since thorough research helps us to grasp the scope of climate change and biodiversity loss, to quantify risk, and to develop fit-for-purpose solutions. This is why we sponsor GRASFI’s annual conference and share relevant scientific findings with investors, clients and the wider asset management industry on our websites.

Although sustainability-related investment has become increasingly important in recent years, it has remained unclear to what extent preferences for sustainability-related investing are universal or vary widely across countries.

The authors of “Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries”[1] recently conducted the first large-scale online experiment of its kind to find out how and why European retail investors consider sustainability aspects in their investment decisions. The paper also sheds light on whether individuals are willing to pay a premium for sustainability-related investments.

Searching for…

The authors sought to answer three key questions: 

1. Do individual investor preferences for sustainability-related investments depend on whether the investment product follows a broad environmental, social and governance (ESG) strategy or a narrower climate-related strategy?

2. How much do individual preferences for sustainability-related investments depend on  

  • Financial beliefs
  • Social signalling motives
  • Social preferences?  

3. How does the relevance of the investor motives for sustainability-related investments vary across countries? 

The study, conducted online, involved more than 1 000 individual investors in France, Germany, the Netherlands, Poland and Spain. ‘Individual investors’ were defined as financial decision-makers in their household who either owned or were sufficiently informed about investment products. The countries were selected because of their differences in economic background, stock market participation, and pro-social and environmental behaviour.

The participants were asked to allocate investments between sustainability and conventional MSCI World exchange-traded funds (ETFs). Two different sustainability ETFs were considered, one that tracks an index that follows a broad ESG-based screening strategy, the other following a narrow climate-related strategy. ETFs were chosen as they are straightforward investment products that enjoy a high degree of familiarity.


Once the numbers were crunched, the study revealed a range of results that should prove useful for sustainable finance asset developers and owners, as well as for policymakers involved in the drive to net zero emissions. The main findings of this study included:  

  • Preferences for sustainability-related investments are stronger for a specific climate change fund than a broad ESG fund.
  • Financial motives matter for sustainability-related investments. More interestingly, social preferences play a key role in individual sustainability-related investment behaviour.  
  • Furthermore, social preferences play an important role in explaining sustainability-related investments in all five countries. The strength of the relation varies somewhat across countries, with the highest importance in Germany and the Netherlands.  
  • Individual preferences for sustainability-related investments vary across Europe. The sensitivity to higher fees on sustainability-related funds varies across countries and is highest in the Netherlands and Germany.
  • Fee sensitivity is strongly driven by financial literacy. Financially literate individuals reduce the share of sustainability-related investments when these investment products become more expensive.   

Implications for asset prices…

The authors concluded that investors across Europe differ significantly in their sensitivities to rising fees for sustainability-related investments, implying different levels of willingness to pay for these investments.

Financial literacy is a key driver of this fee sensitivity. Uniformly across countries, sustainability-related investment preferences are slightly stronger when the fund follows a specific climate-related investment strategy than a broader ESG strategy.

Social preferences were also revealed to play an important role in the countries considered, even though the countries differ significantly in many socioeconomic factors.

The authors believe the results have significant implications for asset prices and indeed run counter to financial theory models that suggest investor decisions are grounded solely on risk-return considerations.

They also make reference to recent theoretical considerations which assume that investors with stronger tastes for ESG – but also for a stock’s ability to hedge climate risk – are willing to pay more for assets that generate a positive impact for society.

Since investor tastes could thus influence stock prices, a greater willingness to pay for shares in firms with a sustainability focus would translate into lower capital costs for these firms.

The study also confirms that people from different European countries uniformly invest a remarkable share in climate-related funds, if they have the opportunity to do so.

…and for the policy process

We believe these are important findings for the current policy process at the European level, where financing the necessary measures for the transition to a low-carbon economy is a major issue.

Future research could investigate sustainability-related investment behaviour in other European countries and different continents, as sustainability-related investments are becoming more important around the world.

After all, climate change is a global challenge, and understanding what motivates individuals to contribute to financing effective solutions is of paramount importance. 

“The paper highlights the growing importance of sustainability in the investment decisions of European retail investors. The survey discussed in the paper shows that European retail investors tend to prefer sustainability-related investments over conventional funds and have a small preference for climate-related funds over more general ESG funds. Although sensitivity to fees varies across the continent, retail investors are prepared to pay a premium for their sustainable preferences while noting that financial motives also matter. Asset managers operating in Europe should respond to this trend by offering products that meet such preferences, with adequate choices related to the sustainability theme of investments while not discarding the importance of financial decisions when selecting investments.”  

Raul Leote de Carvalho, Deputy Head of Quant Research Group, BNPP AM 


1 Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries by Daniel Engler, Gunnar Gutsche, Paul Smeets :: SSRN 


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

Related insights

Exploring the carbon offset market: Issues, reforms and the future
Universal access to clean water and sanitation has wide-ranging benefits

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2022 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2022 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behavior. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favor. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.

To access insights from our teams worldwide visit:
Explore VIEWPOINT today