Risk-return-environment trade-offs: a lab-in-the-field experiment with finance professionals

Sébastien Duchêne (), Adrien Nguyen-Huu, Dimitri Dubois and Marc Willinger
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Sébastien Duchêne: MBS - MBS School of Business, CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Adrien Nguyen-Huu: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Dimitri Dubois: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Marc Willinger: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

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Abstract: We present a lab-in-the-field experiment on portfolio choices involving finance professionals, complemented by a sample of undergraduate students, where green and brown assets generate environmental externalities. Building on an extension of the Markowitz (1952) mean-variance model (Gasser et al., 2017), we examine how return, risk, and environmental preferences interact. Participants exhibit pro-environmental behavior, showing stronger aversion to brown assets than attraction to green ones. Environmental concerns drive a return-externality trade-off but do not induce greater risk-taking for greener assets. Professionals display stronger environmental preferences than students, who remain more return-sensitive. Despite individual deviations, the model offers a good first-order approximation at the aggregate level. Our findings challenge the assumption that ESG preferences can be accommodated simply by adjusting risk-return profiles, revealing that sustainable finance may struggle without risk-mitigating mechanisms when environmental impact implies elevated financial risk.

Keywords: sustainable finance; behavioral finance; experimental finance; green assets (search for similar items in EconPapers)
Date: 2025-05-06
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