Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19

Abstract

We document fragile demand for socially responsible investments (SRI) by retail mutual fund investors. Using COVID-19 as an economic shock, we show funds with higher sustainability ratings experienced sharper declines in retail flows during the pandemic, controlling for fund characteristics. Contrasting resilience of institutional SRI fund flows, sharper declines in retail SRI flows to funds marketed in economies hit hardest by COVID-19, recovering SRI fund flows during reopening periods, and falling internet search traffic on sustainability during the pandemic indicate a high sensitivity of demand for SRI by retail investors with respect to income shocks.

Keywords: COVID-19, Mutual Fund Flows, Sustainable Investing, ESG, Socially Responsible Investing, SRI

JEL Classification: D62, G11, G14, G23, G41, I10, M14