Why Investors Fail to Act Sustainably: A Psychological Review Beyond Bias

Abstract

The rapid growth of sustainable investing reflects increasing global concern for environmental, social, and governance (ESG) issues. However, a notable discrepancy persists between investors expressed support for sustainability and their actual portfolio choices. This study explores the psychological foundations underlying this disconnect. Drawing on a systematic review of academic literature published between 2000 and 2025; the research integrates perspectives from behavioural finance and sustainable finance to examine why investors often refrain from acting on sustainability intentions. While established cognitive biases such as loss sensitivity, overestimation of personal judgment, and reliance on heuristics play a meaningful role, the findings suggest that investment inertia cannot be explained by biases alone. Emotional attachments to conventional assets, perceived ambiguity surrounding ESG performance, identity-related motivations, and prevailing social norms also influence decision outcomes. Additionally, the complexity and framing of ESG information shape how investors evaluate trade-offs between financial returns and ethical considerations. The review emphasizes that behavioural design mechanisms, including structured choice environments and clearer sustainability disclosures, can help bridge the gap between intention and action. Overall, the study provides a comprehensive psychological perspective on sustainable investment inaction and offers practical insights for advancing responsible financial behaviour.