Winter 2022

82 REAL-LEADERS.COM / WINTER 2022 MENTAL HEALTH Think about the last time you bought something expensive to make yourself feel better after a disappointment or when you treated yourself to a fancy and expensive dinner after some accomplishment. Howdid thismake you feel? IN THE MOOD FOR SUSTAINABLE FUNDS? HOW FEELING PESSIMISTIC CAN INFLUENCE WHERE INVESTORS PUT THEIR MONEY Emotions have a strong influence on purchasing decisions. More often than we realize, we make these decisions based on emotions rather than rational calculations and facts. It is well documented that financial decisions are also influenced by emotions. In low-mood periods, people are more pessimistic about a firm’s prospects, which is associated with decreases in stock market prices. Because of the growing popularity of assets with a strong focus on environmental, social, and governance (ESG) goals — companies with corporate policies that encourage them to act responsibly —we wanted to look at what role emotions can play in determining people’s preference for sustainable investments. Why Investors Choose Sustainable Investments There are several reasons why people may want to invest in sustainable assets. Some may be “social signaling” — they like to talk about how their investments are socially responsible. Another reason can be found in how someone was raised. An individual’s propensity to invest in socially responsible assets is influenced by having parents owning similar assets or growing up in a family that values environmental sustainability. The “warm glow effect,” which is a good feeling experienced through the act of giving, also explains why investors choose ESG assets. Investors experience positive emotions when choosing sustainable investments, irrespective of the investments’ impact. But does an investor’s mood influence their preference for sustainable investments? There are several reasons why emotions might affect where people put their money. The Role of Mood in Our Investment Decisions There are two competing theories when it comes to examining the role of mood and sustainable investment. The first is based on the idea that sustainable assets are generally less risky. In this sense, assets considered completely or mostly sustainable have been shown to outperform less sustainable assets in crises, as investors see them as more trustworthy and having fewer By Adrian Fernandez-Perez, Alexandre Garel & Ivan Indriawan

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