Digital Financial Literacy, FinTech Adoption, and ESG Investment Decisions in Pakistan: A Behavioral Perspective

As green finance and fintech integration have led to key developments in emerging economies, very little is recognized about how technology and cognitive aspects drive Environmental, Social, and Governance (ESG) investment decisions. In order to examine how Pakistani retail investors make ESG investment decisions, this study creates and empirically validates a hybrid AI–FinTech–behavioral model. Particularly, it explores how risk tolerance (RTOL), financial experience (FEXP), and digital financial literacy (DFL) affect FinTech adoption (FINTECH), and how FinTech adoption (FINTECH) subsequently affects ESG investment decisions through financial attitude (FATT), with AI trust (AITRUST) included as a moderating factor. Using PLS-SEM (SmartPLS 4) analysis of survey data from 486 active retail investors, the results show that DFL (β = 0.462, p < 0.001) and FEXP (β = 0.336, p < 0.001) strongly predict FinTech adoption. FinTech adoption, on its part, has a substantial impact on financial attitude (β = 0.549, p < 0.001), which in turn positively influences ESG investment decisions (β = 0.301, p < 0.001). Furthermore, the relationship between FinTech adoption and ESG is mainly mediated by financial attitude (indirect effect = 0.165). However, to the contrary, AI trust is not strongly involved in ESG decisions (β = 0.016), and risk tolerance has no significant direct or moderating impact. The model accounts for 46.7 percent of the variation in ESG investment choices (R2 = 0.467). The results of the study reveal that while trust in AI systems, at least in the current Pakistani environment, does not currently promote sustainable investment behavior, digital skills and financial understanding are crucial for ESG investing readiness in developing nations. These findings could help advance sustainable finance for policymakers, FinTech firms, and financial educators.