Green is the New Black: Bridging Climate Awareness and Sustainable Investing

Climate awareness does not necessarily translate into sustainable investment choices. Using representative survey data on young adults in Italy, this paper studies ESG engagement as a sequential process in which individuals must first understand ESG criteria before they can incorporate them into portfolio decisions. The results reveal a behavioural friction: climate-aware respondents are less likely to know ESG criteria, but, conditional on such knowledge, they are more likely to express preferences for ESG products. These opposing effects largely offset each other in the unconditional probability of ESG engagement, masking latent preferences for sustainable investing. The findings suggest that mobilising retail investors for the green transition requires not only environmental concern, but also domain-specific financial knowledge, credible information and accessible investment channels.