Paper: Why do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries

Abstract: We study why investors are willing to pay higher fees for sustainable investments using large-scale online experiments with individual investors across five European countries. We focus on two potential expalanations - investors' social preferences and the impact of limited financial literacy. Our findings indicate that, across all countries, social preferences significantly contribute to the share of sustainable investments in investment portfolios. However, social preferences do not significantly influence investors' sensitivity to fees. Instead, investorswith weaker financial literacy are more likely to pay higher fees. These results have important implications for financial regulation.