On the limits of altruistic investor preferences: implications for ESG and responsible investments

Purpose This paper aims to discuss the recent theory of altruistic warm-glow investor preferences, review recent findings on environmental, social and governance (ESG) and stock and operating performance and speculate on implications for managers and the green transition. Design/methodology/approach This paper bases its discussion on a general review of recent literature citing the warm-glow theory of altruistic investor preferences. Findings The warm-glow theory explains an observed phenomenon whereby investors appear willing to pay a premium for assets carrying higher ESG scores. Yet, there is new evidence that market uncertainty and perceived greenwashing reduce these preferences. Practical implications This paper offers insights and recommendations to managers regarding the importance of paying attention to investor perceptions of ESG, the fact that managers should not hesitate to aim for responsibility, and the need to avoid scandals and greenwashing, to improve investor perceptions. Social implications The warm-glow theory carries green transition dilemmas. Lower cost of capital favours green investments for high ESG firms. However, it also lowers the cost of non-green investments for those same firms. Furthermore, investors lose their appetite for responsible investments under uncertainty, and if firms are perceived to greenwash. Altruistic warm-glow investor preferences will thus not “automatically” lead to a green transition. Originality/value To the best of the authors’ knowledge, this is the first essay in this journal and in general to discuss the more practical implications of the emergent theory of altruistic warm-glow investment preferences.