Can financial professionals and climate experts align on climate action?

Addressing the climate crisis requires transforming our economies, putting the finance industry in focus. How ready are financial professionals for this role? Our study contrasts the perspectives of financial professionals and academic climate experts on climate action.
Can financial professionals and climate experts align on climate action?
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As the urgency of the climate crisis intensifies, aligning key stakeholders is critical for coordinated and impactful action. The finance industry will play a pivotal role in facilitating a sustainable transformation as among others it controls capital allocation to green and sustainable investments which can spur such a transition - yet there are open questions around whether financial professionals currently prioritize climate change at the level scientific evidence suggests is needed. Our study examines the potential for an "action gap" between influential financial professionals and leading academic climate experts that could hinder the transformations required to address the climate crisis.

In our study using an incentivized experiment, we gauged individuals' willingness to sacrifice personal payouts to purchase real-world carbon offsets from a certified provider as a measure of their readiness to take climate change action. Essentially, the greater the amount respondents are willing to forego and contribute towards purchasing carbon offsets, the stronger their inclination to combat climate change.

Study participants were selected to capture diverse perspectives: we sampled 305 leading academic climate experts who recently published climate research, 300 financial professionals from major European institutions like banks and asset managers for which we use our proprietary financial professional subject pool, and 92 financial regulators including central bankers. Invitations to participate in the online experiment were sent out via email.

We find that climate experts demonstrate a significantly higher willingness to act on climate change, as evidenced by their much higher valuation (around 215 euros) of a 10-ton carbon offset compared to financial professionals (around 145 euros) in the incentivized experiment (see Figure 1). This stark contrast in the valuation of carbon offsets between climate experts and financial professionals provides compelling evidence for the existence of a willingness to act gap. Perhaps more troubling, financial professionals also exhibited distorted beliefs about climate experts' norms - overestimating just how much experts prioritize and are willing to act on climate change. The misalignment of climate norms between the two groups is worrisome as it can prolong inaction in the finance sector.

Fig. 1: Willingness to act: indifference valuations.

Surveying attitudes across our sample uncovered further discrepancies. We show that economic and reputational motives like profitability and public image are the main drivers of financial professionals' support for climate action more than environmental or social factors emphasized by climate experts. These divergent priorities translated into opposing policy preferences - financial professionals were far less supportive of interventions like carbon taxes that experts overwhelmingly backed. Looking beyond our primary samples, we find financial regulators exhibit some preferences aligning with each group. Like climate experts, they valued climate actions highly, but like financial professionals, they were less enthusiastic about strict carbon taxes - perhaps a middle-ground position.

Our results highlight barriers, but also potential paths forward. Since misperceptions about others' views can inhibit climate action, one way forward is to correct distorted beliefs between the groups through open dialogue such as workshops of climate and policy experts and the banking sector. Moreover, targeted education on scientific and economic climate implications could enhance financial professionals' understanding as the action gap we identified is likely rooted in a deeper value gap.  Closing this value gap requires highlighting the inherent benefits of sustainable climate practices in a way that fosters a sense of personal motivation.

The prioritization of reputations as emphasized in our survey results may also be influenced by distortions in the financial system. Critics argue that compensation structures in the financial sector still heavily favor short-term performance goals, disadvantaging sustainable long-term investing. Adjustments to bonus systems could incentivize a shift here.

Ultimately, meaningful climate progress requires the financial sector to integrate a value system that aligns economic priorities with environmental sustainability and societal wellbeing over the long-term.

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Climate Change Mitigation
Humanities and Social Sciences > Society > Sociology > Environmental Social Sciences > Climate Change Mitigation
Banking
Humanities and Social Sciences > Business and Management > Industries > Financial Services > Banking
Behavioral Economics
Humanities and Social Sciences > Economics > Behavioral Economics
Experimental Economics
Humanities and Social Sciences > Economics > Quantitative Economics > Experimental Economics

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