Congratulations on your recent appointment as SFI Junior Chair! Looking back on your four years at the University of St.Gallen and SFI, what stands out to you most when you reflect on that period — either in terms of key moments, projects, or collaborations?

St. Gallen offered me my first assistant professor position, and that was just wonderful. To be able to conduct my research independently is incredible. I really love coming to the office, to work, and to exchange with my colleagues in St. Gallen and throughout the SFI network. I see it as an enormous privilege to dedicate myself to questions I find interesting amongst people who inspire me.

Your paper, "Green Investing and Political Behavior" (co-authored with Florian Heeb, SAFE and Goethe University Frankfurt, SFI Prof. Stefano Ramelli, University of St.Gallen, and Anna Vasileva, University of Zurich) is forthcoming in the Review of Financial Studies. The paper tackles a central question in sustainable finance: whether green investing crowds out support for climate policy. Was there a specific trigger or motivation that led you and your co-authors to start working on this question? 

Yes, there were two things. First, there was an influential article by Tariq Fancy, a former BlackRock executive, who called ESG investing a "dangerous placebo" arguing that it is not just ineffective, but takes away resources from the real solutions and is therefore counterproductive. The essay resonated widely, but there was no evidence to support or disprove its thesis. We thought it was important to find out, because if it were true, the research about sustainable investing might also be counterproductive. The second thing was the Swiss referendum on a climate law, which provided the perfect setting to design a test. As soon as the date was fixed, we started working.

For this research project, you used a preregistered experiment conducted shortly before a real Swiss referendum on climate law. Could you tell us more about the experimental design, and what makes this setting an important contribution to existing research on the topic? 

The key concern with experiments is usually that people do not behave as they would in reality, because they know it's just an experiment. The referendum provided a natural context for making political choices, reducing that problem. But we also made sure it was not "just an experiment". We let participants decide on a donation to either campaign and implemented some of these donations. That means participants' choices actually had consequences, resulting in more ads for their favored campaign and possibly influencing the outcome. If decisions in the experiment have consequences in the real world, it is much harder to hide your true preference. And the results are more reliable.

What were your findings, both from the Swiss study and the extended experiments carried out in the UK?

We found that having the option to invest in a climate fund prior to the donation decision did not reduce donations in favor of the climate law. So the narrative that green investing diverts resources from green political action is not supported by the data. This pattern replicated in the UK, which really reinforces our findings. In fact, across a large pooled sample, we see a small positive effect that would suggest that green investment products encourage more pro-climate political support, but just a little bit. The message is that it does not have this unintended consequence of slowing down political progress on the climate problem.

Why do you think findings in other domains, such as energy consumption choices, differ from those you observed in the context of green investing?

It is difficult to say which aspects of this behavior apply to other contexts. But my personal view is that people primarily act on principle in political choices. Principles can be a bit rigid and irrational. But their advantage is that they are less vulnerable to crowding out.

What do these findings suggest about how we should think about the relationship between private finance and public climate policy?

These findings suggest that it is sensible to pursue both – private climate investing and public climate policy – when trying to solve the problem. It is obvious that voluntary private investments in climate funds are not a sufficient solution. But when implemented well, they can make a contribution. And an important advantage is that one does not have to be in the majority to make a difference.

What were some of the main challenges that you and your co-authors encountered in the process of this research project?

The biggest challenge was to get the experimental setup right in time for the political decisions. But that also made the project move fast and stay on the pulse of the time, which is an advantage.

Are there any upcoming projects that you are particularly excited about?

We have a related paper that partly grew out of this project, titled: "Beliefs About the Climate Impact of Green Investing", which is also available as an SFI working paper. One comment we sometimes received was that if investing has no impact, it should not affect political choices. But our data showed that most people believe green investing has an impact. In the new paper, we show that the general population is much more optimistic about the impact of green investing than a sample of academic experts. We suggest that this is rooted in an oversimplified mental model that most people have of financial markets.

Read the full paper here.