In this address, I discuss differences across investor and manager motivations for considering sustainable finance— value versus values motivations—and how these differences contribute to misunderstandings about environmental, social, and governance investment approaches. The finance research community has the ability and responsibility to help clear up these misunderstandings through additional research, which I suggest.

We hypothesize that the well-documented negativity bias, the psychological tendency to asymmetrically emphasize negative over positive aspects, can help explain several financial market phenomena: why most individuals hold strongly bearish views of both short- and long-term equity return distributions, why individuals exhibit heterogeneous beliefs, and the stock market participation puzzle. Using variation in the perceived risk of mortality from the swine flu pandemic as our primary proxy for an individual's negativity bias, we find strong support for our hypothesis even when controlling for alternative mechanisms including optimism, risk aversion, ambiguity aversion, and anxiety.

Through a survey and analyses of observational data, we provide systematic evidence that institutional investors value and demand climate risk disclosures. The survey reveals the investors have a strong demand for climate risk disclosures, and many actively engage their portfolio firms for improvements. Empirical analyses of holdings data corroborate this evidence by showing a significantly positive association between climate-conscious institutional ownership and better firm-level climate risk disclosure. We establish further evidence of institutional investors’ influence on firms’ climate risk disclosures by examining a shock to the climate risk disclosure demand of French institutional investors (French Article 173).