Study finds green motives can sway what people pay for stocks

A company’s environmental move may get a different reaction depending on whether people think it is about profits, social good, or both. For retail investors, the finding is a reminder that ESG, short for environmental, social and governance, can affect how people value a business beyond the direct cash benefits.

Augustin Landier of HEC and his collaborators tested that idea in online lab experiments with 1,400 volunteers, according to their paper posted on SSRN. Participants were asked how much they would pay for a stock in a company that used production methods reducing pollution damage to society.

The setup gave volunteers two concrete numbers. The stock paid a dividend of $2.60 per share, meaning cash distributed to shareholders for each share owned. Participants were also told the company’s production technique reduced pollution damage by $0.90 per share.

The researchers then changed the stated reason for the company’s cleaner production method. In one version, the CEO described the choice as a way to cut costs and maximize profits. In another, the CEO framed it as a pro-social decision meant to reduce harm to society. A third version said the move helped both society and the company’s bottom line.

Some participants were asked how much they would put into the company’s stock. Others were asked how much they would pay for the company’s products. That split let the researchers compare investor behavior with consumer behavior under the same basic facts.

Cash still mattered most

Landier and his co-authors found that the dividend had the largest effect on willingness to pay for the stock. That is the straightforward finance part: higher direct cash payments make a share more valuable to someone deciding what it is worth.

The reduction in pollution damage also mattered, according to the researchers. Participants assigned value to the environmental benefit even though the stated benefit went to society rather than directly into the buyer’s pocket.

The motive attached to the green action mattered too. When the CEO presented the cleaner production technique as a profit-maximizing choice, volunteers lowered what they were willing to pay for both shares and goods, according to the study. When the CEO described the decision as pro-social, participants were willing to pay more.

When the CEO cited both business and social reasons, willingness to pay landed between the two other cases, according to Landier and his collaborators.

Why the framing matters

The experiment points to a practical tension for companies that make environmentally positive choices. A cleaner process can improve financial results if it reduces costs, just as reusing towels can save a hotel money on laundry. But the study suggests people may respond differently when management emphasizes cost savings rather than social intent.

That does not mean the researchers proved how all investors behave in public markets. The work used an online experiment, and the participants responded to a simplified company scenario rather than trading an actual listed stock. Still, the results show that stated motives can influence valuation judgments even when the dividend and pollution reduction stay the same.

For investors reading corporate sustainability claims, the study adds one more item to watch: the stated business case and the stated social case may both shape perception. According to Landier and his co-authors, people in the experiment cared most about the dividend, but they also cared about the environmental benefit and why the CEO said the company pursued it.

This story draws on original reporting from Klement on Investing.