In a world where climate change is an ever-present topic, the finance sector becomes the target of vivid discussions about the role of sustainable investing.
A recent study examined how much Swiss households know about socially, environmentally and economically sustainable investment products. We provide you with a short summary of the key facts.
Classic financial literacy is considered to be on a comparably high level in Switzerland. However, since there is no clear indication or regulation whether a financial product is sustainable or not, investors need extensive knowledge that goes beyond basic financial literacy in order to tell apart truly sustainable products from greenwashing.
A new study of Massimo Filippini, Markus Leippold and Tobias Wekhof examines how much Swiss households know about this so-called sustainable finance literacy, which they define as “the knowledge and skill of identifying and assessing financial products according to their reported sustainability-related characteristics”.
How is sustainable finance literacy measured?
The authors collected answers from a sample of 3059 Swiss households that all have previous investment experience. The panel had to answer a mixture of open-ended and multiple-choice questions. With several regression models and the use of natural language processing and artificial intelligence, the study provides suggestive evidence on sustainable finance literacy in Switzerland.
Here are two example multiple choice questions to assess the sustainable finance literacy. The correct answer is underlined and the percentage of respondents is in parentheses.
The questions show that sustainable finance literacy is characterized by an understanding of sustainability in the sense of the ESG criteria and deeper knowledge about regulatory policies in Switzerland. Those are key factors to correctly assess the sustainability of a financial product.
How is the situation among Swiss households?
The results of the study show that although the financial literacy is comparably high in Switzerland, the households have low levels of sustainable finance literacy. The lack of sustainable finance literacy leads to investors being more prone to possibly misleading marketing and greenwashing.
The study identifies that a higher education, higher income, younger age and a preference for taking risk positively influence the sustainable finance literacy.
How can sustainable finance literacy be improved in Switzerland?
The study concludes that in order to improve sustainable finance literacy in Switzerland the government could impose transparent regulatory standards, like they did for energy efficiency (a scale from A+++ to G). This would simplify the decision-making process of private investors.
Furthermore, information campaigns on sustainable finance literacy would improve the knowledge of investors.
The whole study can be read here.