Center for Advancing Accounting

Sustainability: Performance, Preferences, and Beliefs

• In Event: Sustainability and Investment Decisions

Abstract

As a basis for their investment decisions, investors collect both financial and sustainability information. However, insights on why investors consider sustainability information are limited. We examine whether investors’ preferences toward sustainability and beliefs about other investors’ preferences toward sustainability affect the consideration of sustainability information in investment decisions. Additionally, we examine whether this relation is sensitive to sustainability performance. We conduct an experiment with a non-cooperative coordination game that incorporates investors’ higher-order beliefs, offering a new framework for experimental asset markets. This study shows that pro-sustainable higher-order beliefs have an additional effect on investment decisions beyond the effect of pro-sustainable preferences demonstrating that higher-order beliefs are an integral part of investment decisions in the context of sustainability. Furthermore, the results suggest that investors with pro-sustainable preferences derive utility from holding assets with higher sustainability performance, whereas investors with pro-sustainable higher-order beliefs derive utility from correctly forming expectations about other investors’ preferences toward sustainability.

Author

• Victor Schauer, Ludwig Maximilian University Munich