Optimistic messages that emphasize the long-term benefits of shifting investments away from fossil fuels could increase the amount of wealth under sustainable management by the equivalent of US$3.6 trillion, a new study suggests.
The findings offer an alternative to the doom-laden messaging about climate change that dominates media narratives but so far has not succeeded in promoting substantial divestment from fossil fuels: currently, only 36% of assets under management globally are invested responsibly.
“[The climate] crisis is unlikely to abate while the world continues to collectively fund the extraction and burning of fossil fuels,” researchers write in a paper published in the journal Scientific Reports. “A radical change in investment choices is necessary.”
In the new study, the researchers asked 335 people attending an online conference for Australian investment professionals to design a hypothetical investment portfolio allocating money among four different investment options—two conventional options and two on an environmental, social, and corporate governance (ESG) model.
The researchers wanted to test how the way information is presented, or framed, affects investment choices. Message framing had been shown to change people’s behavior in other contexts, but there has been little research on what messages move the investment professionals who have so much influence over whether fossil fuel projects get funded.
The researchers introduced the hypothetical portfolio task in one of four ways: with a “Social Norm” frame emphasizing that most investors are recognizing fossil fuel investments as undesirable; an “Optimism” frame contrasting the temporary costs of divestment with the long-term growth potential of low-carbon assets; a “Messenger” frame in which pro-divestment advice is delivered by a well-known industry expert; or a “Control” frame warning of the risks of continued investment of fossil fuels, in line with standard doom-and-gloom messaging.
The study participants all had expressed an intention of increasing ESG investments in the next decade. This would likely make them receptive to messages about climate change, the researchers say.
Even so, framing matters. The Optimism frame increased study participants’ ESG portfolio allocation by 3.6% compared to the Control frame. In the real world, this effect size could increase the assets under responsible management by US$3.6 trillion.
“The results are particularly striking because it shows that optimistic climate communication is effective on highly analytical professional experts with an average of 19 years of experience in investing,” study team member Danielle Kent of the University of Sydney Business School in Australia said in a statement. “The assumed knowledge is these sophisticated investors can’t be nudged, but we observed a statistically significant increase in environmentally conscious investment decisions.”
In contrast, the Social Norm and Messenger frames failed to increase responsible investing in the study.
The results suggest a communication strategy to promote responsible investment that professional investors might respond to better than the current standard of dire warnings. “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,” Kent said.
Source: Daugaard D. et al. “Optimistic framing increases responsible investment of investment professionals.” Scientific Reports 2024.
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