Retail investors and sustainable finance
Sustainable finance literacy, overconfidence and the role of information and advisors

F. Corielli, D. Costa, M. Gentile, F. Saita

Quaderno di finanza (Working paper) No. 90 - December 2025 [PDF]
 

Abstract
Investor decision-making in the realm of sustainable finance has garnered increasing scholarly and regulatory attention, particularly considering the pivotal role ESG (environmental, social, and governance) investments play in advancing climate objectives and the European Green Deal. While extant literature has underscored the multifactorial nature of sustainable investment behaviour – ranging from financial motivations to value alignment – it has also consistently identified a positive association between sustainable finance literacy (SFL) and both the propensity to invest and actual investment in sustainable assets.
This paper contributes to the literature by disentangling the roles of actual SFL, perceived SFL, and SFL overconfidence – the latter defined as the discrepancy between perceived and actual literacy. While overconfidence is known to exert a significant influence on investment behaviour, potentially leading to suboptimal outcomes, in many other investment decisions, its role has not so far been investigated in the context of ESG products, which are characterised by informational complexity and a relatively short performance history, potentially amplifying the risk of misinformed decision-making. Using data from a large survey of Italian investor, we first document the existence of SFL overconfidence, and we show that in a simple correlation analysis the relationship of SFL overconfidence with investment in sustainable assets is almost as strong as the one with actual SFL.
Employing an instrumental variable approach to address endogeneity concerns, we show not only that the link between SFL overconfidence and investment in sustainable assets is confirmed, but also that increased access to general financial information may enhance actual SFL without exacerbating overconfidence, whereas targeted sustainable finance information tends to increase both. These findings suggest that policy interventions aimed at fostering informed investment should carefully calibrate the dissemination of financial and sustainability-related information to mitigate unintended cognitive biases.
Furthermore, our analysis extends the emerging literature on the role of financial advisors in shaping sustainable investment decisions. Survey-based evidence indicates substantial perceived heterogeneity in advisors’ engagement with sustainable products, with more proactive advisory behaviour positively associated with investment in sustainable assets. This underscores the importance of advisor training and regulatory oversight in promoting responsible investment practices.
Overall, our findings highlight the necessity of a nuanced policy framework that not only seeks to elevate sustainable finance literacy but also actively monitors and manages the cognitive distortions that may arise in its wake, thereby fostering more informed and resilient investor behaviour in the sustainable finance domain.  

Authors
Francesco Corielli - Bocconi University (francesco.corielli@unibocconi.it)
Daniela Costa - CONSOB, Research and Regulation Department (d.costa@consob.it)
Monica Gentile - CONSOB, Research and Regulation Department (m.gentile@consob.it)
Francesco Saita - Baffi Centre on Economics, Finance and Regulation, Bocconi University (francesco.saita@unibocconi.it)

We wish to thank Nadia Linciano, Guglielmina Onofri, Paola Deriu, Paola Soccorso and Federico Picco for their useful comments. Of course, the authors are the only responsible for errors and imprecisions. The opinions expressed here are those of the authors and do not necessarily reflect those of CONSOB.

JEL Classifications: G11, G40, G41, G53.

ISSN 2281-1915 [online]