Social Preferences of Investors and Sustainable Investing

33 Pages Posted: 19 Dec 2019

Date Written: December 3, 2019


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: or

Harshini Shanker (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

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