New Schulich Research Uncovers Key Factors Influencing Retail Investor Interest in Green Bonds
TORONTO, ON – Wednesday, February 5, 2025 – New research from York University’s Schulich School of Business sheds new light on the behaviour of retail investors in the growing green bond market.
The research, titled “To label or not? A choice experiment testing whether labelled green bonds matter to retail investors”, is co-authored by Schulich Professor Olaf Weber, the CIBC Chair in Sustainable Finance.
Green bonds serve as a vital tool in sustainable finance, helping direct capital toward climate-friendly projects. While institutional investors have shown a strong preference for green bonds, this study explores the largely unexamined retail investor segment. The research findings highlight that most retail investors exhibit a clear “green label effect”, choosing labelled green bonds over non-green alternatives, even when financial returns are lower.
“Retail investors are increasingly drawn to sustainability-focused investments, but our study shows that a simple green label can significantly influence their decision-making, often more than the actual environmental benefits of the bond,” says Professor Weber. “This highlights both an opportunity to mobilize more capital for sustainable finance and the need for stronger regulatory oversight to prevent greenwashing.”
Key findings from the study include:
- Retail investors prioritize the presence of a green label over the actual environmental performance of a bond or higher financial returns from a non-green bond.
- A subset of investors with strong pro-environmental leanings are willing to invest in enhanced environmental performance green bonds, even at the cost of lower returns.
- Retail investors may be vulnerable to greenwashing risks if green labels are not backed by robust regulatory frameworks.
The research offers timely policy implications, suggesting that regulatory frameworks are essential to ensure transparency and accountability in the green bond market. Additionally, the study highlights the potential for policy tools, such as tax-free green bonds and improved climate-related financial disclosures, to increase retail participation in sustainable investing.
“As green finance continues to expand, understanding the psychology behind investment decisions will be crucial in shaping effective policies that support global climate action,” says Weber.
Olaf Weber is available for interviews.