A generation that came of age through the 2008 financial crisis, a global pandemic, and accelerating climate disruption is rewriting what it means to invest. Rather than chasing returns alone, many young investors say they want their portfolios to reflect their values, favoring companies with strong environmental, social, and governance records over those without. But wanting to invest responsibly and actually doing it are two different things, and researchers have been trying to understand what tips the balance.
A new study in Acta Psychologica sheds light on a surprising piece of that puzzle: the social encouragement young investors get from friends, family, and online communities only translates into actual intentions to invest responsibly when those investors already have a solid grasp of financial concepts. Without that foundation, peer influence alone doesn’t move the needle.
The question behind the research
Socially responsible investing, often shortened to SRI, refers to putting money into companies that meet certain ethical, environmental, or social standards. Interest in this approach has surged globally, but most academic research has focused on investors in the United States and Europe. Much less is known about how the trend is unfolding in emerging economies like India, where sustainable investing is still relatively new and financial literacy varies widely.
Khushboo Raina and colleagues at the Lal Bahadur Shastri Institute of Management in Delhi wanted to understand what actually drives young Indian investors toward socially responsible options. They were especially interested in how three forces interact: investors’ perceptions of how well SRI products perform, the social pressure they feel from their peer groups, and their own financial knowledge.
The researchers built their investigation on a well-established psychological framework called the theory of planned behavior, which holds that people’s intentions are shaped by their attitudes, the social norms around them, and their sense of whether they have the knowledge and control to act. The team wanted to see how these pieces fit together in the specific context of responsible investing.
How the study was conducted
The researchers surveyed 563 young investors between the ages of 20 and 40 living in and around Delhi, an area with a dense concentration of young professionals working in sectors like IT, healthcare, consulting, and hospitality. To reduce bias, the data was collected in two waves spaced about two months apart. The first wave measured perceptions of SRI performance, social norms, and financial literacy. The second wave captured actual intentions to invest in SRI products.
Participants answered questions on a five-point scale about how they viewed SRI returns, what their friends and family thought about responsible investing, how confident they felt in their financial knowledge, and whether they planned to put money into SRI products. The researchers then used a statistical technique called structural equation modeling to map out how these factors related to one another.
What the analysis revealed
The first finding was straightforward: young investors who believed SRI products performed well financially were significantly more likely to intend to invest in them. Returns still matter, even for investors motivated by ethics. The idea that people must sacrifice financial performance to invest responsibly doesn’t hold up in this group.
The second finding was more interesting. Social norms, meaning the expectations and encouragement of friends, family, and online communities, also predicted investment intentions. When young investors felt their social circle approved of responsible investing, they were more inclined to pursue it themselves.
But here’s where things got unexpected. The researchers had hypothesized that strong perceptions of SRI performance would feed into stronger social norms, which would in turn boost investment intentions. That chain didn’t hold up. Perceptions of performance alone did not meaningfully strengthen social norms. The authors interpret this as a sign that, among young investors in emerging markets, peer conversations about SRI tend to be grounded more in shared values and identity than in evaluations of how well these products actually perform.
The role of financial literacy
The picture changed when the researchers introduced financial literacy into the model. Once they accounted for how much investors actually understood about financial concepts, the chain that had previously failed to materialize suddenly came alive. Financially literate investors were able to take their perceptions of SRI performance, translate them into meaningful conversations within their social networks, and arrive at stronger investment intentions as a result.
In other words, financial literacy acts as a kind of activation switch. Without it, social influence and performance perceptions operate in relatively separate channels. With it, they reinforce one another. The authors interpret this as evidence that young investors aren’t simply swept along by peer pressure. They build their own competence first, and only then do social signals start to carry real weight in their decisions.
The model as a whole explained about 52 percent of the variation in SRI investment intentions among the young investors surveyed, which the authors consider a substantial portion for this kind of behavioral research.
What this means for institutions and investors
The practical implications point in several directions. For financial regulators and policymakers, the findings suggest that awareness campaigns and product availability alone won’t be enough to grow the SRI market in emerging economies. Building baseline financial literacy is a necessary precondition for social influence and performance data to have their intended effects.
The authors recommend that institutions like India’s Securities and Exchange Board work with educational bodies to weave sustainable finance concepts into university curricula. They also suggest that brokers and asset managers could be required to provide educational content about responsible investing before onboarding young customers, potentially through mobile apps or gamified learning tools.
For financial institutions, the research points to a customer base that is both receptive to SRI and skeptical of unregulated advice. Young investors appear to want to build their own understanding before committing. Products and platforms that support that learning process, rather than simply pushing recommendations, may find more traction.
There are limitations worth noting. The study focused on young investors in a single metropolitan region of India, so the findings may not generalize to other countries or age groups. The data also came from self-reported surveys, which can introduce bias, and the researchers measured intentions rather than actual investment behavior. Whether stated intentions translate into real portfolio decisions is a question for future work.
Still, the research offers a useful reframing of how the rise of responsible investing among younger generations is likely to unfold. Values and social influence are part of the story, but they appear to require a foundation of financial knowledge to become meaningful drivers of behavior. For an investment category that depends on informed, deliberate choices, that may be the most important finding of all.
