Introduction

The report examines whether retail investors hold realistic beliefs about the climate impact of green investment products. It surveys 2,101 German retail investors and 182 academic experts to measure perceived climate impact, compare belief accuracy, identify underlying mental models, and assess how belief adjustments influence investment decisions. Existing evidence suggests green investment products may have limited real-economy effects, raising concerns that retail investors may overestimate their efficacy and thus misallocate capital.

Methods

The authors conduct a pre-registered survey. Academic experts with publications or conference contributions related to sustainable investing were invited, achieving a 26% response rate. Retail investors were recruited to reflect German investor demographics. All participants received detailed information on a representative green fund: a Paris-Aligned Benchmark (PAB) equity ETF.

Beliefs were elicited through three main questions: agreement with the statement that a €10,000, ten-year investment reduces global emissions; ranking the investment relative to five other personal climate actions; and estimating the percentage of an average German citizen’s ten-year carbon footprint offset by the investment. Respondents also explained their reasoning.

Academic experts additionally evaluated four potential impact channels: capital-cost effects, valuation effects, shareholder engagement, and direct financing of constrained green companies.

Retail investors were randomly assigned to a control or treatment group, with the treatment group receiving a summary of expert views before stating willingness-to-pay (WTP) for the green fund. Investment choices were elicited using an incentive-compatible mechanism.

Results

Overoptimistic climate impact beliefs

Most academic experts are sceptical about the climate impact of the fund: 61.54% disagree that a €10,000 investment makes a relevant contribution to reducing global greenhouse gas emissions, with a mean agreement score of –2.66 (–10 to 10 scale). Experts consistently rank the fund as the least impactful among six climate-related personal actions and assign a median emission-reduction estimate of 2%, with 0% the most common answer.

Retail investors show markedly more optimism. 76.34% agree that such an investment meaningfully reduces emissions, with a mean agreement score of 2.83. They estimate a median 10% emissions reduction (mean 16.72%). Retail investors rank the fund’s effectiveness above political action and climate-oriented donations. They also express greater confidence in their estimates despite less accurate mental models.

Impact beliefs have an influence on investment decisions

Exposure to expert views significantly reduced retail investors’ agreement that the fund has meaningful climate impact, with mean agreement falling from 2.94 to –1.24 post-treatment. This also reduced their willingness to invest: preference for the green fund fell from 61.75% to 55.50%, and average WTP declined from €6.11 to €4.67. The strongest behavioural shifts occurred among investors with initially positive climate beliefs or higher climate concern.

The treatment also modestly lowered return expectations, though climate considerations remained dominant in investor decision-making.

Retail investors neglect financial-market transmission mechanisms

Qualitative analysis shows retail investors rely primarily on company-impact arguments, such as assuming fund investments directly support greener firms. 77% of their arguments fall into this category. In contrast, 64% of expert rationales reference investor-impact mechanisms, focusing on price, capital-cost, and engagement channels and emphasising their limited effectiveness in diversified passive funds.

Experts commonly cite the difficulty of influencing firm behaviour through secondary-market trading, the small scale of individual investments, and the limited climate relevance of many firms included in PAB indices.

Conclusion

The study documents a substantial divergence between expert and retail investor beliefs about the climate impact of green funds. Retail investors substantially overestimate impact due to limited understanding of financial-market mechanisms and a focus on company activities rather than investor influence. These beliefs shape investment choices, and correcting them reduces demand for green funds. The findings suggest potential misallocation of capital and highlight the importance of clearer communication about the real-economy impacts of sustainable investment products.