Does Financial Literacy Shape Environmental and Social Considerations in Microenterprise Investment Decisions?

This paper investigates the effect of financial literacy on the consideration of environmental and social impacts in investment decisions among a sample of OECD microenterprises. Exploiting a unique, granular dataset collected from 2021 by different central banks on 5,944 microenterprises, we provide novel evidence of a positive, significant association between financial literacy and both environmental and social responsibility. While some differences emerge across firm characteristics, these remain limited in magnitude, suggesting a broadly stable relationship across sub-samples. When disentangling financial literacy into its components, we find that financial behaviour and financial attitudes are consistently associated with both environmental and social impacts, whereas financial knowledge plays a weaker, less robust role. These findings highlight the importance of considering financial literacy as a multidimensional construct and suggest that policies aimed at strengthening behavioural and attitudinal financial capabilities support the environmental and social transition of micro enterprises.