From pro-environmental behavior to ESG fund investing: Evidence from account-level data in China

Utilizing the green energy collected through the “Ant Forest” project to measure investors' pro-environmental behavior (PEB), the paper finds that investors' PEB positively impacts the weighted Environmental, Social, and Governance (ESG) score of their mutual fund positions. Additionally, when classifying PEBs into egoistic and altruistic behaviors based on specific sources of green energy, the study reveals that altruistic PEBs have a more substantial influence than egoistic PEBs. Further analysis demonstrates that egoistic PEBs become more significantly related to ESG investing when investors face extreme weather events, poor air quality, or seek to enhance their reputation. Although ESG investing transformed from altruistic and egoistic PEBs results in negative excess returns, egoistic investors experience a significant reduction in risk through ESG fund investments. In contrast, altruistic investors are willing to pay higher costs. These findings suggest that even though altruism predominantly drives the transformation from PEB to sustainable investment, egoism can also play a role when investors seek to mitigate uncertainties, diversify their portfolios, or promote social validation. Overall, these results contribute to our understanding of the motives behind sustainable investment.