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.
William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance
Harvard Law School
Glenn and Mary Jane Creamer Associate Professor of Business Administration, Harvard Business School
Assistant Professor of Finance,University of Chicago Booth School of Business