Does green investing reduce political support for green policy?

There is a central question that divides critics and supporters of sustainable investing. Some believe that sustainable investment can have a positive effect on addressing climate change. Others argue that private climate action, like green investing, may distract from advancing more effective public solutions.

One of the triggers for the research, according to the co-authors Julian Kölbel and Stefano Ramelli, was the prominent claim that sustainable investing is a “dangerous placebo” — not only failing to contribute solving the sustainability challenges of our time but potentially diverting attention and resources away from political action. If that were true, the implications for sustainable finance and its practice would be serious. However, the claims were made without empirical evidence to support it.

The authors saw as an opportunity to test this in a real political setting: the Swiss referendum on a climate law in 2023. The referendum offered an ideal setting to study whether the option to invest in a climate-friendly fund changes people’s willingness to support climate policy politically.

Testing green investing in a real-world political setting

The study was conducted with Swiss citizens conducted about a month before the referendum. Participants first went through an “investment stage”, where they were asked to allocate CHF 1,000 between two real investment funds. In the treatment group, one of the funds was presented as climate-friendly and participants received information about the climate performance of the funds. In the control group, participants received only standard financial information.

In the next stage, participants were presented with arguments from both sides of the referendum campaign and could donate part of their payout to either the campaign supporting the climate law or the one opposing it. The authors used these donations, along with stated campaign alignment and voting intentions, to measure political support for climate regulation.

“Gathering this data during a real referendum provided us with more specific data and was a major strength of this study, said co-author Julian Kölbel project. Noting that experiments like this are often criticised because people behave differently when they know they are in an artificial environment.

Study co-author Stefano Ramelli noted that, “The idea that green investing crowds out support for climate policy is a powerful narrative working against the sustainable finance movement. Our findings indicate that this concern is not warranted empirically. If anything, we find signs that green investing may even increase political engagement on climate issues. Most people do not perceive green investing as a substitute for climate policy, but rather as a complement to it.”

No evidence that green investing crowds out climate policy support 

The central finding of the paper is clear: offering people the option to invest in a climate fund did not reduce their support for climate policy. In the Swiss experiment, participants in the treatment group did not donate less to the pro-climate campaign than those in the control group. If anything, the treatment group showed slightly higher support.

The authors extended the research to the United Kingdom in a similar experiment linked to a climate-focused parliamentary campaign. The pattern was the same: no evidence that the opportunity to invest in a green fund reduced support for climate policy. Across the larger pooled sample from Switzerland and the UK, the researchers even found a small positive effect suggesting that green investment products may slightly increase pro-climate political support.

Taken together, the results reject the idea that green investing systematically crowds out political action on climate. Instead, the findings point toward a modest “crowding-in” effect, where private climate investing and public support for climate policy may reinforce one another rather than compete.

Rethinking the relationship between private finance and public policy

What the paper does show, however, is that the “dangerous placebo” concern is not supported in this setting. Giving people access to a climate-friendly investment product did not make them less willing to support climate regulation.

For practitioners, the implication is not that any product labelled “green” is beneficial. The quality and credibility of green investment products still matter. However, one can focus on the economic effects without worrying about political countereffects.

The study Green Investing and Political Behaviour was published in the Review of Financial Studies. The co-authors Julian Kölbel und Stefano Ramelli are assistant professors at the University of St.Gallen School of Finance.