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Sustainability Preferences Under Stress: Evidence from COVID-19

Published online by Cambridge University Press:  17 November 2022

Robin Döttling  and
Sehoon Kim
Robin Döttling
Affiliation:
Erasmus University Rotterdam Rotterdam School of Management [email protected]
Sehoon Kim*
Affiliation:
University of Florida Warrington College of Business
*
[email protected] (corresponding author)
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Abstract

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We document fragile demand for socially responsible investments (SRIs) 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. The decline in retail SRI fund flows is sharper than that of institutional flows, more pronounced when economies are hit harder by COVID-19, and unlikely to be driven by fund performance, past flows and size, or shifting investor attention. Corroborated by out-of-sample survey evidence, our findings highlight the high sensitivity of SRI demand by retail investors with respect to income shocks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 2 , March 2024 , pp. 435 - 473
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Vikas Agarwal, Rui Alburquerque, Jennifer Conrad (the editor), Gustavo Cortes, Celine Fei, Mark Flannery, Andrei Goncalves, Samuel Hartzmark, Kewei Hou, Joel Houston, Nitish Kumar, Tao Li, Xiaomeng Lu, Christian Lundblad, Pedro Matos, Andy Naranjo, Nimal Nimalendran, Martin Oehmke, Dongyang Pan, Lubos Pastor, David Rakowski, Sugata Ray, Luc Renneboog, Jay Ritter, Jacob Sagi, Zacharias Sautner, Gill Segal, Elena Simintzi, Paul Smeets, Laura Starks, René Stulz, Yuehua Tang, Blair Vorsatz, Alexander Wagner, Baolian Wang, Haibei Zhao, and conference/seminar participants at the 2021 SAIF Sustainable Finance Forum, 2021 European Retail Investment Conference, Fall 2020 Virtual Asset Management Seminar Series, the University of North Carolina at Chapel Hill, University of Florida, Erasmus University Rotterdam, Seoul National University, VU University Amsterdam, and Concordia University for helpful comments and suggestions. This article was previously circulated under the title “Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19.”

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