Behavioural finance and the ESG hustle : The black arts
In the final installment of three stories in the Journal of Investing, Professor Hersh Shefrin, the Mario Belotti chair in the Department of Finance at Santa Clara University, delves into the topic of ESG (Environmental, Social, and Governance) investing and its psychological underpinnings. The article, titled ESG and Behavioral Finance: Why ESG investing is primarily a psychological phenomenon, explores the reasons behind the growing trend of ESG investing, emphasizing the role of human behavior and psychology in shaping investment decisions. The article highlights the increasing interest in ESG investing, which focuses on companies that prioritize environmental sustainability, social responsibility, and good governance. It suggests that this trend is not solely driven by financial considerations but is also influenced by investors psychological factors, such as their values, beliefs, and emotions. Professor Shefrin argues that ESG investing is primarily a psychological phenomenon because it reflects investors desire to align their investments with their personal values and contribute to positive social and environmental change. This desire is rooted in the human tendency to seek meaning and purpose in life, and the growing awareness of global challenges such as climate change and social inequality. The article also discusses the role of behavioral finance in understanding ESG investing. Behavioral finance examines how psychological factors affect investment decisions and market outcomes. It suggests that investors biases and heuristics can lead to suboptimal investment choices, and that ESG investing can help mitigate these biases by providing a framework for making more informed and value-driven decisions. In conclusion, the article emphasizes the importance of understanding the psychological factors driving ESG investing and the potential benefits of integrating behavioral finance insights into investment strategies. It encourages investors to consider their values and beliefs when making investment decisions and highlights the growing relevance of ESG investing in today s increasingly interconnected and socially conscious world. To read more about this topic, interested readers can subscribe to the Journal of Investing, either individually or as part of a group, and
Source: nbr.co.nzPublished on 2024-09-14
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