The impact of knowledge on labeling schemes promoting sustainable investing

Abstract

Sustainable labeling schemes are frequently used to simplify decisions for consumers, for example, in financial contexts, and to subsequently promote sustainable investments. The purpose of this research is to, against the backdrop of dual processing theories, outline consumer reactions to sustainability-oriented investment labels. Experimental results from a representative sample show that objective labels are perceived more favorably by financially knowledgeable individuals. Three developed and validated scales, measuring general and specific financial knowledge as well as environmental knowledge, further suggest that this evaluation is domain contingent, with only knowledge that aligns with choice domain interacting significantly with label format. The importance of the choice domain prevails with regard to the interaction between knowledge and the perceived effectiveness of an investment. We are able to verify retail investor reactions to sustainable labeling, which are of major importance for fund both companies and legislators considering an introduction of mandatory sustainability labeling.