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In their study "Optimistic framing increases responsible investment of investment professionals," researchers Dan Daugaard, Danielle Kent, Maroš Servátka, and Lyla Zhang delve into the impact of optimistic framing on responsible investment, particularly in carbon divestment.
The study aimed to determine if framing divestment as a social norm, communicated by credible experts, and highlighting its optimistic attributes could bolster responsible investment.
Targeting individuals planning to increase their investment in Environmental, Social, and Governance (ESG) criteria, the research revealed that an optimistic framing significantly enhances responsible investment decisions, showing a potential 3.6% increase. Given the enormous size of global professionally managed assets, this could lead to a USD $3.6 trillion shift in asset allocations.
"These findings and recommendations are a more positive alternative approach to the frequently negative presentation of sustainability issues. In contrast to the haunting and fearful messaging we instinctively lean towards, an optimistic perspective catalyses investment decision-making and facilitates funds to flow towards more sustainable investments," Professor Dan Daugaard told me.
Commenting on LinkedIn, Dr Danielle KentThe results are particularly striking because they show that optimistic climate communication is effective on highly analytical professional experts with an average of 19 years of experience in investing."
It's good to see infectiously optimistic leadership from people like Dan, an Associate Professor and Discipline Leader in Finance at the Tasmanian School of Business & Economics at the University of Tasmania.
This research aligns with The Centre for Optimism's findings, which advocate for more Climate Optimism, arguing that pessimism leads to paralysis. Eminent figures like Sir James Bevan and Jacinda Ardern have echoed this sentiment, emphasizing that acknowledging the problem and maintaining optimism are vital to finding practical solutions to the climate crisis. Bevan asserts that understanding the issue and persisting in our efforts can solve the emergency and create a better world. Ardern stresses the importance of optimism and a concrete plan in the face of climate challenges, advocating for optimism to drive meaningful action.
The study's findings suggest that adopting an optimistic perspective in framing carbon divestment can significantly influence responsible investment and contribute to the broader goal of addressing climate change through sustainable practices.
Addendum
I asked one of the researchers, Maroš Servátka, what makes him optimistic. Maroš told me, "You pose an important yet difficult-to-answer question. In economics, we tend to model optimism in situations when there is uncertainty around future outcomes, as subjectively placing a higher weight on the positive outcome relative to the negative one. This can occur particularly when we perceive that our actions are capable of influencing the underlying probabilities, which may or may not be true. This optimism bias (or attitude if you will) can sometimes be great, as it can mobilise us to action. For example, to contribute to reversing the climate change. In other situations, for example, it could be harmful when unrealistically evaluating the chances that a startup will succeed. The latter problem is often exacerbated by overconfidence."
Maroš Servátka, Professor of Economics, is the Director of the MQBS Experimental Economics Laboratory at Macquarie Business School.
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