Rich and Responsible: Is ESG a Luxury Good?

Abstract

We study whether investors perceive responsible investments (i.e., investments in assets with environmental or social benefits) as a luxury good. We exploit windfall wealth due to inheritances from parental deaths to obtain plausibly exogenous variation in wealth. We show that windfall wealth increases likelihood of holding responsible mutual funds and green stocks. Our findings indicate that both supply factors (e.g., bank advice) and demand factors (e.g., preferences) play a role in shaping allocations to responsible investments. Notably, inheritors with a history of charitable donations exhibit a stronger response, emphasizing the influence of a 'warm glow' effect on portfolio formation.

Keywords: ESG, socially responsible investments, mutual funds, luxury good, windfall wealth, warm glow

JEL Classification: G11, D64