Believe it or not: Psychological Bias, ESG, and Investor Preferences

Despite numerous pledges to achieve carbon neutrality and more than a decade of scrutiny of what is now known as green finance, capital continues to flow into fossil fuel companies. Meanwhile, investment in renewable energy remains insufficient, highlighting the need to understand the factors that shape investment decisions. Existing research has primarily focused on retail investors, paying limited attention to professional investors and even less to their investments in fossil fuel companies. Addressing these gaps, this paper surveys professional investors (149 responses) and studies their decision-making processes in the energy sector. To analyse whether investors value information related to the low-carbon transition of energy firms, a Multiple-Discrete-Continuous Extreme Value (MDCEV) model is employed for the first time in sustainable finance literature. The results show that investors recognise climate-related opportunities and are willing to invest in renewable energy, yet they continue to allocate significant capital to fossil fuel companies. Factors such as professional roles, investment experience, and resistance-to-change bias influence their willingness to exclude fossil fuels from their portfolios. The results highlight that perfect information alone is insufficient to redirect capital away from fossil fuels and that climate policies should be more incentivising to accelerate the transition.