Believe it or not: Energy and Investor Preferences

Ten years after the Paris Agreement, many financial institutions have pledged to achieve carbon neutrality by 2050, yet private capital continues to flow to fossil fuel-related activities. While prior literature has documented sustainable preferences at the fund level, little is known about how professional investors select individual firms within carbon-intensive sectors. In particular, there is limited evidence on whether investors reward fossil fuel firms' transition efforts when allocating capital. This paper addresses this question through a survey of 152 professional investors, most of whom are employed by European asset management companies. Respondents participate in a portfolio allocation experiment in the energy sector, analysed using a Multiple Discrete-Continuous Extreme Value (MDCEV) model. The results reveal a predominant label effect: investors systematically favour the renewable energy firm while continuing to allocate capital to firms that generate revenue from fossil fuel activities. We find no robust evidence that transition-related indicators, including low-carbon capex and decarbonisation plans, affect investment decisions involving fossil fuel-related firms. These findings suggest that green preferences coexist with continued exposure to fossil fuels, although the restricted sample size may have limited the detection of more granular attribute effects.