Do Investors Use Sustainable Assets as Carbon Offsets?

Abstract

We present novel evidence that retail investors attempt offsetting their carbon footprints by investing sustainably. Using highly granular transaction data from bank clients, we find that higher footprints are linked to greener portfolios. In an experiment with clients from the same bank, we show that an exogenous shock to the participants’ salience of their emissions causally shifts sustainable asset allocations upward. Finally, we identify a substitution effect between offsetting through donations and sustainable assets. Our findings add to an understanding of the behavioral drivers of sustainable investing, which is crucial to design effective policies aligning financial markets with environmental goals.

Keywords: Sustainable Investing, Carbon Footprints, Green Portfolios, Retail Investors

JEL Classification: G40, G41, G11, D14, C93