THE INFLUENCE OF ESG METRICS ON INVESTOR BEHAVIOR AND DECISION-MAKING PROCESS THROUGH THE LENS OF MENTAL HEURISTICS
DOI:
https://doi.org/10.46991/SBMP/2025.8.2.024Keywords:
investor psychology, decision-making heuristics and biases, limited rationality, ESG metrics and indicators, ethical considerationsAbstract
Investor decision-making is often shaped by research of a range of financial and non-financial parameters of the investee company for predicting investment profitability, understanding future risks and challenges associated with the product or market as a whole, creating a mental image/profile of the company with its advantages and disadvantages. Psychological research from the 1970s and on allowed us to conceptualize real-world decision-making (DM), understand the limitations of human information processing and the influence of personal cognitive, emotional features bounding our rationality, yet allowing us to make optimal decisions. The research gave us an understanding of cognitive mechanisms of heuristics and biases, which somewhat simplify the complex informational flow and optimize the process of mental analysis, yet can create some systematic errors or skewed perceptions of the situation or a sense of overconfidence. This study explores how ethical considerations function as heuristics in guiding investment behavior, particularly in the context of ESG (Environmental, Social, and Governance) performance. Drawing from behavioral finance theory, we hypothesize that ethical reputation acts as a cue that influences perceived trustworthiness, and depending on the intentions of the investor (fast gain or slow grow) can affect their decisions differently.
Using a sample of 37 investors, we conducted a mixed-methods study combining decision-making and mental heuristics profile and personal DM factors with the self-perceived effectiveness of investment behavior and proneness to consider ESG metrics. The results demonstrate that long-term investors systematically utilize ESG data and, through the lens of heuristics and biases (the interconnection yet to be researched), impact DM. Ye,t considering ESG metrics important, the investors did not necessarily perform ESG information-seeking behavior. These findings highlight the intersection between ethics and cognitive processing in financial contexts. Ethical cues appear to serve as intuitive filters in investment judgments, suggesting that proper ESG reporting and communication may significantly shape market behavior through psychological channels.
References
1. "Behavioral Finance: Psychology, Decision-Making, and Markets"; Editors: Lucy Ackert, Richard Deaves; Cengage Learning; 352p; 2009
2. “Market Mind Games”, D. Shull, McGrow Hill, 270p; .2012,
3. "Heuristics and Biases: The Psychology of Intuitive Judgment"; Editors: Thomas Gilovich, Dale Griffin, Daniel Kahneman; : Cambridge University Press; 857p; 2002
4. “A Brief Overview of Over 160 Cognitive Biases”, Durmus, Self-published, 232 p; 2022,
5. “BEHAVIORAL FINANCE How Psychological Factors Can Influence the Stock Market”, Gregor Kaufmann, Self-Published, 140p.; 2021,
6. “Sustainable Value: How the World’s Leading Companies Are Doing Well by Doing Good”, C. Laszlo, 208p.;2008
7. “Integrated Management: How Sustainability Creates Value for Any Business”, 433p., 2018
8. “The Development of Non‑financial Reporting: The Role of Sustainability Reporting (SR) and Integrated Reporting (IR)”, Minutiello, 98p.; 2025
9. P. Cician; A. Cupak; P. Fessler; D. Kanncs, 2022; https://doi.org/10.48550/arXiv.2206.14548
10. The role of investment beliefs and heuristics in corporate valuation, Magnus Jansson, Lana Sabelfeld, Sakarias Einar Sefik Bank, 2025, https://doi.org/10.1108/QRFM-08-2023-0200
11. The Impact of ESG Management on Investment Decision: Institutional Investors’ Perceptions of Country‑Specific ESG Criteria, Park & Jang, International Journal of Financial Studies, Volume 9, Issue 3 (2021), DOI: [10.3390/ijfs9030048]
12. Understanding ESG Scores and Firm Performance: Are High‑Performing Firms E, S, and G‑Balanced? Lee, Raschke & Krishen, Technological Forecasting and Social Change, Volume 195 (2023), DOI: [10.1016/j.techfore.2023.122779]
13. The Impact of ESG Practices in Industry with a Focus on Carbon Emissions: Insights and Future Perspectives, Baratta, Cimino, Longo, Solina & Verteramo (2023), Sustainability (Vol. 15, No. 8), DOI: 10.3390/su15086685
14. The Effects of Environmental, Social and Governance Disclosures and Performance on Firm Value: A Review of the Literature in Accounting and Finance, Brooks & Oikonomou (2018), The British Accounting Review (Vol. 50, Issue 1), DOI: 10.1016/j.bar.2017.11.005
15. Scoring Environment Pillar in Environmental, Social, and Governance (ESG) Assessment, Senadheera et al. (2021), Sustainable Environment (Vol. 7, No. 1), DOI: 10.1080/27658511.2021.1960097
16. A Review on ESG Investing: Investors' Expectations, Beliefs, and Perceptions, Kräussl (2024), Journal of Economic Surveys, DOI: 10.1111/joes.12599
17. Factors Associated With ESG Investment Attitude, Dinh et al. (2025), Corporate Finance Review, DOI: 10.1002/cfp2.1201
18. A Study on the Mechanism of ESG's Impact on Corporate Value and Innovation, Jin (2023), Sustainability (MDPI), DOI: 10.3390/su1508442
19. The Effect of Foreign Investors on ESG Investment Efficiency, Kim (2025), Sustainability (MDPI), https://doi.org/10.3390/su17052267
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Arevik Heboyan
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
