Pensions and Investments : Social and Environmental Preferences of Beneficiaries, and Financial Illiteracy

Institutional investors invest billions of dollars on behalf of investors whilst knowing little about investors' social values. Using survey data from a customized wave of the Dutch CentERdata panel for citizens who are obliged to participate in a pension plan, we find significant variation in stated preferences towards proposed social investment screens. Although individuals are able to express their preferences towards social investment criteria they are not able to translate these values into investment decisions consistently. This is partially driven by the low financial sophistication of households. To emphasize the importance of these findings we show that the majority of beneficiaries derive positive utility from environmental and social pension investment screens and that expressing a preference towards screened pension investments is the most important driver of this effect