Do Investors Value Sustainability?
A Natural Experiment Examining Ranking and Fund Flows

A B S T R A C T

Hartzmark and Sussman present evidence that US mutual fund investors value sustainability. In March 2016, Morningstar began publishing a sustainability rating, from one globe to five, for roughly 20,000 funds. This globe rating clearly indicates Morningstar’s assessment of the fund on this characteristic. The authors find that funds rated as having low sustainability sustained net outflows of more than $12 billion, and funds rated as having high sustainability experienced net inflows of more than $24 billion. While the experimental evidence suggests that sustainability is viewed as positively predicting future performance, the evidence does not show that high sustainability funds outperform low sustainability funds. The authors’ findings are consistent with prior research, which indicates that positive affect influences expectations of sustainable fund performance and that nonpecuniary motives can influence investment decisions. 

A U T H O R S

Samuel M. Hartzmark

Associate Professor of Finance

University of Chicago Booth School of Business

Abigail B. Sussman

Associate Professor of Marketing

University of Chicago Booth School of Business