Sustainable Finance Literacy and the Determinants of Sustainable Investing

Abstract

This paper introduces the concept of sustainable finance literacy, which refers to retail investors’ knowledge of regulations, norms, and standards for financial products with sustainable characteristics. We survey a large sample of Swiss households and measure different literacy concepts using two complementary approaches. First, we use traditional multiple-choice questions, and second, a novel approach based on open ended questions that ask respondents to write a text response. We find that Swiss households, which typically show high financial literacy by international standards, exhibit a low level of sustainable finance literacy. Interestingly, multiple-choice questions lead to a gender gap, with women performing worse than men. However, this difference disappears when open-ended questions are used. Moreover, despite its low level, sustainable finance literacy is a highly significant factor for sustainable product owner ship. Therefore, our results reveal an urgent need to establish transparent regulatory standards and strengthen information campaigns on sustainable financial products.