Socially Optimal Sustainability Standards with Non-Consequentialist ("Warm Glow") Investors

Roman Inderst and Marcus Opp

No 17100, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Agencies around the world are in the process of developing taxonomies and standards for sustainable (or ESG) investment products. A key assumption in our model is that of non-consequentialist private investors (households) who derive a "warm glow" decisional utility when purchasing an investment product that is labelled as sustainable. We ask when such labelling is socially beneficial even when the social planner can impose a minimum standard on investment and production. In a model of financial constraints (Holmström and Tirole 1997), which we close to include consumer surplus, we also determine the optimal labelling threshold and show how its stringency is affected by determinants such as the prevalence of warm-glow investor preferences, the presence of social network effects, or the relevance of financial constraints at the industry level.

Keywords: Sustainability; ESG; Green financing; Labelling (search for similar items in EconPapers)
Date: 2022-03
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Working Paper: Socially Optimal Sustainability Standards with Non-Consequentialist ("Warm Glow") Investors (2022)
Working Paper: Socially optimal sustainability standards with non-consequentialist ("warm glow") investors (2022)
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