Households’ Investments in Socially Responsible Mutual Funds

Abstract

We use a large administrative panel data set to study which characteristics are related to households' investments in socially responsible investing (SRI) mutual funds. To isolate financial and non-financial preferences for SRI investments, we distinguish between two types of SRI funds; ESG and charitable funds. We also analyze to what extent liquid wealth and age play a role in allocation of SRI funds. We find that participation in SRI funds is lower for young and retired investors. Moreover, we find that young adults are more likely to be ESG investors, while retired investors are more likely to participate in charitable funds. Further, liquid wealth is important for SRI participation but becomes less relevant once investors have sufficient liquid wealth. For the exposure to SRI funds, the overall picture is quite different as it is negatively related to wealth, income, risky share, and education. The relationship between investors' characteristics and the returns on their conventional fund portfolio are similar for conventional and SRI investors. Our analysis indicates that SRI investors might have non-financial objectives for their SRI investments. Finally, on average, SRI investors earn higher returns on their total fund portfolio compared to conventional investors.

Keywords: household finance, portfolio choice, retail investors, SRI investments

JEL Classification: D14, D31, D64, G11, G51