Examining a shock to the salience of the sustainability of $8 trillion of mutual funds, we present causal evidence that investors marketwide value sustainability. Being categorized low sustainability resulted in net outflows of more than $12 billion while being categorized high sustainability led to net inflows greater than $24 billion. Investors reacted to extreme categories, ignoring middle categories and rating details, demonstrating that categorization makes extreme features salient, with marketwide impact. Experimental evidence suggests that sustainability is viewed as positively predicting future performance, but we do not find evidence that high sustainability funds outperform low sustainability funds.
Nicholas J. Chabraja Professor
Northwestern University School of Law and Kellogg School of Management
Scientia Professor in Finance, University of New South Wales
Assistant Professor of Finance,
Wharton Finance, University of Pennsylvania