[https://7i0di.img.bh.d.sendibt3.com/im/sh/KGIIayV8w6cw.png?u=1vcqsYC5HMzcSL9...] IHS Talk Ines Fortin, Jaroslava Hlouskova, Leopold Sögner (IHS) Sustainable investment under prospect theory: the two-assets case June 30, 2025 10.00 am Institute for Advanced Studies Josefstädter Straße 39, 1080 Vienna Sustainable investing, also known as ESG (environmental, social, and corporate governance) investing, is of intense interest in the investment world. We consider an economy with one risky and one risk-free asset and explicitly consider the greenness of the risky asset as well as the risk-free asset. Utility is defined as the weighted sum of a prospect theory value function and an ESG score function. We derive optimal investment strategies, which depend on the relative greenness of the risky to the risk-free asset. We perform an extensive sensitivity analysis which provides properties of the investor's risk taking and the happiness with respect to reference return, loss aversion, ESG-scores, and the weight of the ESG score function. We show that the investment in an asset increases if the corresponding asset becomes greener. If the ESG score function becomes more important, then investment into the greener asset increases. An increase in loss-aversion decreases investment into risky asset. Finally, we observe that investment into the risky asset is first decreasing and then increasing in the reference return, as is often observed in pure prospect theory. However, some properties are different as demonstrated in a simulation study. Ines Fortin, Jaroslava Hlouskova and Leopold Sögner are senior researchers at the IHS research group Business Cycle, Growth and Public Finances<https://7i0di.r.bh.d.sendibt3.com/mk/cl/f/sh/SMK1E8tUrCniLUOQH6ZI3uOYwEoG/uCNCQ2ZnFQe7>. They are presenting a project<https://7i0di.r.bh.d.sendibt3.com/mk/cl/f/sh/SMK1E8tUrCniLUOQH6ZI3uOYwEoG/QwJDjL6Zw0CW> financed by the Austrian National Bank Anniversary Fund. Please register for the event using the following link: Registration<https://29fdb0b8.sibforms.com/serve/MUIFAGypN5ysdIVSLsg14Xc78uEaVQOMBKo7VA-cUtqtMSuIr8OU3bDLf_jRygNk0KUR_bmY7FMEhAEFytQFiB-FL74Se8W-EPgP9nNbYLEpkEimE9uE3ZVDvzzUfzkeXzZJY3Blc5EUSdaATiizE5Z60thyYya2S8iw0_K-6up4w5bMpSWvoRSki4pniET0aHMvlpqohdaO5IXa> Institut für Höhere Studien - Institute for Advanced Studies (IHS) Josefstädter Straße 39, 1080, Wien