Investigating the heterogeneity of ESG investors: evidence from emerging economies

Purpose This study aims to examine the heterogeneity in behavioural characteristics of retail investors regarding sustainable investments, identifying patterns of convergence and divergence in sustainability-oriented market behaviours. By developing and validating specialized indices for environmental, social and governance (ESG) preferences, investor sentiments, performance perceptions, investment intentions, subjective norms, cognitive biases and greenwashing concerns, this research investigates how socio-demographic factors influence these indices through assessing heterogeneity across investor segments. Design/methodology/approach The authors develop and validate five ESG behavioural indices capturing multiple dimensions of sustainable investment behaviour. Data were collected through a comprehensive survey of 511 active retail investors in the Indian stock market. Heterogeneity analysis was conducted to identify variations in behavioural characteristics across the sample. The authors use quantile regression analysis to assess heterogeneity across demographic segments (age, income, gender, employment, education and investment experience), examining how relationships vary across the conditional distribution of ESG behavioural dimensions. Findings The analysis reveals heterogeneity in ESG investment behaviour across demographic segments. Age consistently reduces ESG engagement across all dimensions, while higher income enables selective sustainability preferences but increases investment irrationality. Gender creates divergent ESG orientations, with distinct patterns in environmental versus social priorities. Employment status and education facilitate ESG adoption through stability and social learning mechanisms, whereas investment experience paradoxically generates both sophisticated awareness and fundamental skepticism. Critically, performance perceptions emerge as the primary determinant mediating demographic influences on ESG preferences, establishing that sustainability investment behaviour is instrumentally rational rather than value-expressive in emerging markets. Practical implications The findings provide insights for enhancing sustainable investment participation. Financial institutions should develop targeted educational programmes to address knowledge gaps, as awareness significantly influences ESG preferences. Recognizing investor heterogeneity is essential – younger, high-income investors respond to performance narratives, while older investors seek transparency. Addressing greenwashing concerns through standardized reporting and third-party certifications builds trust. Leveraging social influence through choice architecture and behavioural nudges can overcome decision-making barriers. Income-based strategies should include structured ESG portfolios for high-income investors prone to impulsivity, while providing educational support on stable returns for price-sensitive retail investors in emerging markets. Social implications The identified behavioural market failure in sustainable investing has important implications for the development of sustainable finance policies in emerging markets. Addressing the divergence in sustainability views could accelerate the transition towards more sustainable capital markets and contribute to broader sustainability goals. The findings highlight the need for targeted initiatives and policy interventions to bridge the gap between ESG preferences and actual investment behaviour. Originality/value This study advances sustainable finance through three contributions. First, the authors develop and validate multidimensional ESG behavioural indices capturing preferences, sentiments, perceptions, intentions and irrationality among retail investors. Second, the authors establish demographic heterogeneity as a structural market characteristic challenging the homogeneous investor assumption. Third, the authors theorize performance primacy as the fundamental mechanism driving ESG preference formation, demonstrating instrumental rationality rather than value-expression. These frameworks, validated through quantile regression analysis, provide actionable insights for policymakers and practitioners designing targeted interventions across demographically diverse investor segments in emerging markets.