ESG Awareness, Sustainable Portfolio Allocation, and Financial Literacy: Behavioural Evidence from Indian Retail Investors

Abstract While ESG investing is becoming increasingly popular, there is still limited understanding of the factors that truly motivate a typical retail investor to allocate their portfolio to sustainable investments. The present study investigates the impact of ESG awareness on Sustainable Portfolio Allocation Decisions (SPAD) of Indian retail investors (N = 450). The base model is an extension of the Theory of Planned Behaviour (TPB), with ESG awareness serving as a pre-attitudinal factor influencing attitude and intention formation. We also examine if financial literacy increases the association between ESG awareness and portfolio allocation. These two routes from awareness to action are based on a dual-process perspective: a slow route which involves attitude and intention, and a faster route which involves knowledge and directly impacts behaviour. A structured form consisting of 38 items across 7 validated domains was used, each item being rated on a 5-point Likert scale. Reliability was good, with Cronbach's alpha ranging from 0.853 to 0.905. ESC awareness (r = 0.453, p < 0.001) and intention to invest sustainably (r = 0.483, p < 0.001) were the two most important determinants of SPAD, accounting for 28.9% of the variance. It was found that SPAD (r = 0.121, p 005). Overall, the results indicate that ESG portfolio change is a function of knowledge and motivation, with implications for investor education/advisory services, as well as for India's sustainable finance policies.