Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries

What drives investors’ sensitivity to sustainable investment fees? We conduct a large-scale online experiment with samples of individual investors in five European countries. We explore two main channels for investors' sensitivities to fees. First, investors might be willing to pay higher fees on sustainable investments because of their social preferences. They pay to do good. Second, investors with low financial literacy might not understand that higher fees on sustainable investments have a large influence on their net returns. We find that social preferences play an important role in individual sustainable investment behavior in all five countries, but they do not explain whether investors react to fees. Rather, investors with low financial literacy are most prone to paying high fees. These results have important implications for the development of financial products and potential exploitation of individuals with low financial literacy