Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19
75 Pages Posted: 21 Jul 2020 Last revised: 16 Feb 2021
Date Written: February 14, 2021
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
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