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

75 Pages Posted: 21 Jul 2020 Last revised: 16 Feb 2021

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Sehoon Kim

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: February 14, 2021

Abstract

We investigate ESG preferences during economic distress revealed by retail mutual fund flows. Using COVID-19 as an economic shock, we show funds with higher sustainability ratings experience sharper declines in retail flows during the pandemic, highlighting fragile SRI demand by retail investors. Contrasting responses by less distress-prone institutional investors indicate that retail investors view sustainability as a luxury. Supporting this interpretation, high ESG funds in countries with stricter restrictions, weaker economic support, or lower growth during COVID-19 suffer disproportionately lower retail flows. Our findings are corroborated by recovering ESG flows during reopening periods, and falling internet search traffic on sustainability.

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

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

Suggested Citation

Döttling, Robin and Kim, Sehoon, Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19 (February 14, 2021). Available at SSRN: https://ssrn.com/abstract=3656756 or http://dx.doi.org/10.2139/ssrn.3656756

Robin Döttling

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Sehoon Kim (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

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