Optimism the key to multi-trillion-dollar boost in sustainable investment

New research from the University of Tasmania and partner Universities has revealed that taking an optimistic approach to promoting investments could create a USD 3.6 trillion boost in sustainable and responsible initiatives.

Researchers presented financial experts with proposals that framed divestment from fossil fuels as a social norm, a positive choice or from a trusted expert, with the optimistic framing the most effective.

“We found that investors responded best when presented with information that highlighted the positive aspects of sustainable and responsible investment. This contrasts with the typical disastrous messaging we hear on climate change.”

“Evidence suggests that catastrophic messaging is actually counterproductive and can threaten an individual’s beliefs that the world is orderly, causing them to act defensively and disengage or even dismiss information about global warming.”

“If the results we observed are applied generally to an entire population, we could see a potential global increase in sustainable and responsible investment of USD 3.6 trillion,” Associate Professor of Finance Dan Daugaard said.

Despite the scientific consensus on the impacts of climate change, the scale of investment in the extraction and burning of fossil fuels vastly outweighs the investment in sustainable and responsible assets and initiatives.

“With responsible investment assets representing only 36% of global assets under management, we need radical change and innovative ways to encourage investment that is responsible and sustainable.”

“If the current level of investment in the extraction and burning of fossil fuels continues, it is unlikely that the climate crisis will improve.”

The research highlights the importance of framing in finance, with participants displaying a preference for sustainable and responsible investments that were presented with an optimistic narrative.

“Through testing three communication strategies that could influence the moral judgments of investment professionals, we have identified a persuasive method to encourage responsible investing.”

“Communicating decisions around sustainability in financial settings requires a human-centred approach. Instead of focusing on the consequences of global warming, investment decision messages could incorporate the permanency of future benefits such as flourishing ecosystems, improved longevity and health, shared economic prosperity and greater global security,” Lead Author Dr Danielle Kent from the University of Sydney said.

For Associate Professor Daugaard, this is an opportunity to change the face of sustainable investment in Australia and around the world.

“These findings will support the sustainable investment movement gaining greater traction with investors by informing professionals on ways to positively and optimistically communicate the facts of investment opportunities.”

This research was conducted by the Tasmanian School of Business and Economics, Lead Author Dr Danielle Kent from the University of Sydney Business School, Professor Maroš Servátka and Dr Le (Lyla) Zhang from Macquarie Business School, and Portfolio Construction Forum.

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