Online After Lunch Taskforce meeting: Measuring sustainable preferences of pension members: A methodological proposition and a case study of a UK pension fund

There is an increasing need for asset managers like pension funds to measure the preferences of their clients. Traditionally, the focus of policymakers has been on risk preferences (Alserda, Dellaert, Swinkels, and van der Lecq, 2019). However, this might soon be extended to preferences for sustainable investing (Bauer and Smeets, 2021). We argue that measuring sustainable preference is not trivial. In particular, a naïve use of surveys could fail to elicit the truthful preferences of respondents. We propose the use of an incentivized investment game to measure revealed preferences for sustainable investment and show how these compare to the use of simple survey questions. We provide support for our measure by testing it with clients of a UK pension fund. In this context, there is a strong consistency between the sustainable investing preferences measured via survey question and those measured by the investment game. While we test the approach in the UK, our setting is applicable in the Dutch context as well as in the US or in other European countries. Our approach will become particularly useful when pension funds will need to measure, in addition to preferences for risk, also their clients’ preferences for sustainability.