From confusion to credibility: Evaluating the effectiveness of sustainability profiles in retail investment decisions

We examine how retail investors value sustainability profiles in financial products, focusing on ESG-ratings and SFDR-related disclosures because they represent the two most relevant sustainability profiles in retail investment markets, combining widespread market use with regulatory importance. While prior evidence links sustainability information to fund flows, direct evidence on how households value competing sustainability profiles remains limited. Using representative survey data from the Bundesbank Online Panel – Households, we elicit investors’ willingness-to-pay in annual fund fees for three investment products exhibiting different degrees of sustainability. Randomized information treatments allow us to identify how abbreviated information about ESG-rating and SFDR-related disclosure limitations changes stated valuations. Investors display a clear sustainability premium: willingness-to-pay increases monotonically from "not ESG-focused" to "light green" and "dark green" products. However, this premium declines significantly once investors receive information about imperfect sustainability assessments. Across ESG-rating and SFDR-related disclosure treatments, the willingness-to-pay falls by about 10–14%, while no statistically significant differences emerge between the two information regimes. The results suggest a broader credibility gap: when investors learn that sustainability profiles rely on imperfect assessment rules, they discount sustainability claims irrespective of whether the information is market-based or regulatory. Respondents nevertheless express preferences for specific design features, particularly observable data, unified standards, and granular scales. The findings imply that effective sustainability disclosure must not only inform investors, but also preserve credibility, comparability, and verifiability.