Intersection of ESG and Behavioral Finance: Unearthing Hidden Sustainability Potential within Investment Decision Making

The intersection of ESG (Environmental, Social, and Governance)
and behavioural finance offers a promising framework for
unlocking hidden sustainability potential in investment decision
making. ESG factors consider a company’s environmental impact,
social responsibility, and corporate governance practices, while
behavioural finance explores the influence of cognitive biases and
emotional factors on investment choices. Sustainable ESG investing
integrates these two areas, evaluating companies based on their ESG
performance and practices to identify responsible and sustainable
behaviour. This study aims to understand the behavioural biases
that impact ESG investment decision-making and explore how
behavioural finance principles and interventions can promote
greater adoption of ESG investing. It highlights the importance
of overcoming cognitive biases, framing ESG issues positively,
leveraging social norms, understanding the impact of investor
sentiment, and incorporating behavioural insights into ESG analysis.
By combining these approaches, investors can make more informed
and impactful sustainable investment choices, leading to improved
risk-adjusted returns and positive social and environmental
outcomes. The study also provides an overview of ESG investing
and behavioural finance, discusses common behavioural biases in
ESG investing, and presents behavioural finance interventions in
ESG decision-making. These interventions aim to address biases,
improve decision-making, and align investor behaviour with ESG
goals. By advancing our understanding of the intersection between
ESG and behavioural finance, we can drive positive change in the
investment landscape and contribute to a more sustainable future.Intersection of ESG and Behavioral Finance: Unearthing Hidden Sustainability Potential within
Investment Decision Making