Pension funds and insurers are legally required to periodically determine the risk preferences of their participants and, based on this, determine their risk appetite (usually per cohort), taking into account scientific insights, participant characteristics, and risk tolerance. At the same time, under the influence of regulations and social expectations, it is becoming increasingly important to explicitly include sustainability preferences in investment policy. Aligning investment decisions with participants’ preferences has therefore become a key issue within the pension system.

Although both academic literature and pension practice pay considerable attention to risk and time preferences, and increasingly to sustainability preferences, little is known about the relationship between these three preference domains. This is problematic because pensions involve long-term decisions that are accompanied by uncertainty. In practice, pension providers do not base their policies solely on a pure CRRA framework but also take into account other behavioral and institutional factors, such as loss aversion, feasibility, and—increasingly—sustainability objectives. For participants with explicit ESG preferences, an approach that focuses exclusively on financial outcomes may fall short, as social impact can be an independent source of utility for them.

This project therefore empirically investigates how sustainability preferences relate to risk and time preferences when these preferences are measured in an integrated manner, and to what extent such measurement methods are practically applicable for pension administrators when designing investment policies.