How does the regional ESG context drive the ESG preferences of retail investors?

Based on a large and representative sample of Italian adults, the paper investigates the determinants of retail investors’ environmental, social, and governance (ESG) preferences. Unlike previous literature, the study explicitly focuses on the role of the regional ESG context, which appears important in shaping these preferences. The results show that, when the quality of the regional ESG context is high, individual portfolio attitudes are primarily driven by financial performance objectives rather than sustainability purposes. Conversely, when the quality of the regional ESG context is low, ESG factors become a significant determinant of retail investor preferences, outweighing financial return goals. Robustness analyses indicate some heterogeneity across the three ESG dimensions, with the environmental and social pillars displaying more stable associations across alternative model specifications than the governance pillar. Moreover, our findings show that regional ESG policies significantly moderate the relationship between ESG preferences and the regional social context. The paper provides guidance for financial institutions to align investment products with market demand and for European policymakers to support the sustainable transition of European regions by tailoring policy initiatives to local ESG contexts.