Default Effect in ESG Investment: When a Recommendation Goes a Long Way

ABSTRACT Individual investors display a positive attitude toward ESG investments but typically fail to act upon it. We report results from a preregistered online experiment testing a default option on 1050 US investors examining the mechanisms driving the effectiveness of default options in promoting ESG investments. We underline that the default in itself is a powerful tool to induce more investment in ESG. Adding frictions to opt‐out of the default does not appear to increase its impact. However, adding to a boilerplate default an explicit recommendation from a wealth advisor significantly increases its impact. We further underline that investors displaying higher trait status quo are more prone to stick with the default. We thus unpack the various pathways through which the default is effective and underline that a default associated with an explicit recommendation targeted at investors with high status quo bias is the most efficient strategy to promote ESG investments.