Why ESG Education Could Change Retail Fund Flows

Retail investors often say they want their money to reflect their environmental and social priorities. Yet sustainable funds still represent only a limited portion of many personal portfolios. This gap is frequently treated as evidence that investors do not care enough about sustainability to act on their stated preferences.

New research suggests another explanation. Investors may possess the motivation to invest sustainably while lacking the specialized knowledge required to identify suitable products. In an increasingly complicated market of ESG scores, exclusions, thematic funds, regulatory classifications, and competing definitions of sustainability, expressing a preference is much easier than translating it into a portfolio.

A 2026 study¹ published in the International Review of Economics and Finance tested whether a small educational intervention could help close this gap. The results indicate that sustainable finance literacy can meaningfully influence fund selection, but only when investors already have some desire to invest sustainably.

Sustainable Investing Has a Translation Problem

Sustainable finance literacy refers to the knowledge and skills needed to identify and assess financial products based on their reported sustainability characteristics. It overlaps with conventional financial literacy but addresses a different set of questions.

An investor might understand diversification, fees, volatility, and compound returns while remaining unable to explain how exclusionary screening differs from impact investing. The same investor may have difficulty determining whether a fund merely considers ESG risks or actively pursues a measurable environmental objective.

This distinction matters because the sustainable investment market has become more accessible while simultaneously becoming more complicated. Investors can now choose from broad-market ESG funds, low-carbon strategies, clean-energy funds, green bonds, transition funds, and products built around specific themes such as water scarcity. Securities.io has previously examined both the growing selection of ESG-focused ETFs and how sustainable FinTech infrastructure is making green investments more accessible.

Greater availability does not automatically produce better decisions. Each additional label or strategy creates another distinction that investors must understand. Without that knowledge, a person who wants a sustainable portfolio may choose a conventional product, select a fund that does not match their priorities, or avoid making a decision entirely.

How Researchers Tested Sustainable Finance Education

The researchers conducted a preregistered experiment involving 1,000 German-speaking participants recruited through Prolific. The sample had a median age of 28 and was designed to represent young, digitally engaged retail investors rather than the entire German investing population.

Participants were randomly assigned to a treatment or control group. The treatment group received a short brochure explaining three areas of sustainable finance: ESG criteria, common sustainable investment strategies, and European sustainable-finance regulation. The control group received no corresponding educational material.

Both groups then completed four investment decisions. In each round, participants selected one of three real funds displayed through the interface of a large direct bank. The experiment used a bonus mechanism that could produce actual financial payoffs, giving participants a reason to consider the fund information rather than treat the exercise as a hypothetical survey.

Education Changed Knowledge and Fund Selection

The brochure produced a substantial improvement in sustainable finance literacy. Participants who received it answered approximately four more questions correctly on a nine-question assessment than those in the control group.

That improvement was accompanied by a change in behavior. Across the four decision rounds, receiving the brochure increased the probability of selecting a sustainable fund by approximately 8.5 percentage points per round. It also raised the probability that participants reported using ESG criteria in their decisions by approximately 26.2 percentage points.

The experiment therefore suggests that informational friction is not a minor inconvenience. When investors do not understand the language and structure of sustainable finance, their eventual portfolios may fail to reflect preferences they already hold.

The results are consistent with earlier research showing that sustainable finance education helps align money with investor values. The new study extends that argument by using real financial products, incentivized decisions, and an educational intervention that directly increased participants’ knowledge.

Investor Preferences Still Set the Direction

Education did not persuade every participant to invest sustainably. Its effect depended on whether an investor already possessed at least moderate sustainability preferences. Among people without that underlying interest, additional knowledge did not produce more sustainable fund selections.

This finding provides an important boundary for interpreting financial education. Information can help an investor execute an existing objective, but it does not necessarily create the objective itself.

Sustainable investment behavior can therefore be understood as the intersection of two factors:

• A preference that establishes what the investor wants to achieve
• Sufficient literacy to identify the product that corresponds with that preference

If either component is missing, the portfolio may remain unchanged. Preferences without literacy can leave an investor unable to act. Literacy without preferences gives the investor knowledge but no reason to direct capital toward a sustainable strategy.

This helps explain why questionnaires asking clients whether sustainability is important may have limited value on their own. A platform can record a preference accurately while still failing to help the investor understand which fund would express it.

Why More ESG Labels May Not Solve the Problem

The European Union’s Sustainable Finance Disclosure Regulation classifies funds according to how they address sustainability. Article 6 covers products without the environmental or social characteristics associated with Article 8 or Article 9. Article 8 funds promote environmental or social characteristics, while Article 9 products have sustainable investment as an objective.

These classifications are intended to improve transparency. However, disclosure only works when the intended audience understands it. A technically accurate label can still fail as a decision-making tool if retail investors cannot explain what it signifies.

The experiment illustrates this problem. During the round that presented conventional, Article 8, and Article 9 options, participants who received the brochure were 10.1 percentage points more likely to select the Article 9 fund. Participants who correctly answered the study’s Article 9 question were also 11.8 percentage points more likely to choose that fund.

That does not prove the classification alone caused the difference. The study included only one Article 9 product, and it focused on sustainable water investments. Participants may have responded to the water theme, the regulatory classification, or both.

Nevertheless, the broader implication remains valuable. Sustainable finance regulation cannot achieve its full purpose through disclosure alone. Regulators and financial platforms must also consider whether investors can interpret the disclosed information and compare it across products.

Financial Platforms Could Turn Literacy Into Infrastructure

The study used a brochure, but its most interesting implications extend beyond printed educational material. Brokerages, robo-advisors, retirement platforms, and fund marketplaces could integrate sustainable finance literacy directly into the investment process.

A platform could explain a classification when it first appears, allow investors to compare strategies using consistent definitions, and show how a fund’s stated objective differs from its underlying holdings. It could also separate sustainability characteristics from conventional factors such as fees, diversification, concentration, and historical volatility.

This approach would treat education as part of the product interface rather than a separate course investors must complete. The most effective intervention may not be a long library of educational articles. It may be a concise explanation delivered at the exact point where an investor encounters an unfamiliar term.

Better education could also reduce vulnerability to greenwashing. Investors who understand exclusions, ESG integration, transition strategies, and impact objectives are better equipped to question whether a fund’s holdings support its marketing. Literacy therefore has the potential to improve both sustainable investment participation and product scrutiny.

Investing in Sustainable Fund Infrastructure

The connection between investor education and product distribution leads naturally to the companies operating large fund platforms. BlackRock (BLK ) (NYSE: BLK), through its iShares business, offers a wide selection of exchange-traded funds, including products built around environmental, social, and governance considerations.

BlackRock provides educational material explaining sustainable investing with ETFs and tools for assessing portfolio sustainability characteristics. Its position across asset management, ETFs, portfolio analytics, and financial-advisor infrastructure makes it relevant to investors seeking exposure to the companies shaping how sustainable products are presented and distributed.

The study did not examine BlackRock, and its findings should not be interpreted as evidence about any specific iShares fund. The company is relevant because the research identifies investor comprehension and product presentation as potential competitive factors for large asset managers. If education helps convert existing preferences into allocations, platforms that make fund distinctions easier to understand may be better positioned to attract those flows.

Sustainable Finance Literacy Could Become a Competitive Advantage

The study’s findings should be treated with appropriate caution. Participants were younger and more highly educated than the wider German investor population, and roughly one-third reported a preference for the Green Party. The authors consequently describe the estimated effect as a likely upper bound for the broader population.

The experiment also measured immediate decisions following a one-time intervention. It does not establish whether the knowledge remained months later or whether participants would behave similarly with their own savings. Additional research within banks and brokerage platforms would provide stronger evidence of lasting real-world effects.

Even with these limitations, the research changes how the gap between sustainable preferences and sustainable portfolios can be interpreted. Investors may not be abandoning their values when they select conventional funds. Some may simply lack the knowledge needed to find an appropriate alternative.

For asset managers, that makes education more than a public-relations exercise. Clear definitions, comparable disclosures, and well-designed interfaces can become part of product distribution. For regulators, it means transparency should be evaluated according to what investors understand, not merely what providers disclose.

The next phase of sustainable investing may depend less on introducing another category of fund and more on helping investors understand the choices already in front of them.

References:

^{1. Auzepy, A., Bannier, C. E., & Gärtner, F. (2026). Looking beyond sustainability preferences: The role of sustainable finance literacy in sustainable investing. International Review of Economics and Finance, Article 105773. Advance online publication. https://doi.org/10.1016/j.iref.2026.105773}