Social Preferences of Investors and Sustainable Investing

33 Pages Posted: 19 Dec 2019

See all articles by Harshini Shanker

Harshini Shanker

Indian School of Business (ISB), Hyderabad

Date Written: December 3, 2019

Abstract

I study portfolio sustainability and capital flow dynamics in socially responsible and conventional mutual funds. I document that a large fraction of conventional funds systematically invests sustainably even without a social mandate, while several socially responsible funds persistently green-wash. Both conventional and socially responsible investors value sustainability as they reward sustainable fund portfolios, but they do not punish weak social performance to the same extent that they reward strong social performance. Socially responsible investors respond to portfolio sustainability only when the fund performs poorly financially. As a result, much green-washing goes unpunished. Further, sustainable portfolios do not financially outperform conventional portfolios, suggesting that investors value sustainability for non-economic reasons.

Keywords: sustainability, fund flow, greenwashing, mutual funds, behavioral finance

JEL Classification: G11, G12

Suggested Citation

Shanker, Harshini, Social Preferences of Investors and Sustainable Investing (December 3, 2019). Indian School of Business. Available at SSRN: https://ssrn.com/abstract=3497400 or http://dx.doi.org/10.2139/ssrn.3497400

Harshini Shanker (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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