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

By Samuel M. Hartzmark, Abigail B. Sussman. Journal of Finance, 2019

1,098 citations recorded by the source corpus.

Examining a shock to the salience of the sustainability of the U.S. mutual fund market, we present causal evidence that investors marketwide value sustainability: being categorized as low sustainability resulted in net outflows of more than $12 billion while being categorized as high sustainability led to net inflows of more than $24 billion. 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. The evidence is consistent with positive affect influencing expectations of sustainable fund performance and nonpecuniary motives influencing investment decisions.

Subfields: General Decision Sciences, Safety Research, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/e16cf3b4ed1f7f9a794c6672d3d49ee4a523e11e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In General Decision Sciences

In Safety Research

In Strategy and Management

Citations in the corpus

ESG Preference, Institutional Trading, and Stock Return Patterns (2020, positive): “6 The first paper, Hartzmark and Sussman (2019), documents a positive flow to mutual funds with good sustainability ratings and a negative flow to mutual funds with poor ratings.7 There is also evidence that SRmutual funds charge higher fees, providing further motivation to be SR.8 The second paper,”
A Theory of Socially Responsible Investment (2020, background): “However, Heinkel et al. (2001) and Broccardo, Hart and Zingales (2020) point out that the e↵ect on risk premia is small if profit-seeking investors can substitute for divested capital.”
Mandatory CSR and sustainability reporting: economic analysis and literature review (2019, background): “Hartzmark and Sussman (2019) exploit the introduction of CSR ratings by Morningstar and show that perceptions about sustainability drive mutual fund flows and that investors place a positive value on CSR ratings.”
The pricing of green bonds: Are financial institutions special? (2019, positive): “This evidence is consistent with specific investor preferences driving market prices, as high-lighted by the literature on socially responsible investments (Riedl and Smeets, 2017; Barber et al., 2018; Hartzmark and Sussman, 2019).”
Rewriting History II: The (Un)Predictable Past of ESG Ratings (2020, background): “…between April and June 2020, despite the Covid-19 crisis, pushing assets under management in these funds to an all-time high of over $1 trillion.1 Hartzmark and Sussman (2019) document that fund flows react strongly to the ESG ratings of mutual funds, which are constructed based on the ESG…”
Get Real! Individuals Prefer More Sustainable Investments (2018, neutral): “Others find investors to expect higher risk-adjusted returns on sustainable investments (Bauer and Smeets, 2015; Hartzmark and Sussman, 2019).”
Aggregate Confusion: The Divergence of ESG Ratings (2020, background): “Sustainable investing is growing fast and mutual funds that invest according to ESG ratings experience sizable inflows (Hartzmark and Sussman, 2019).”
The value of a firm’s engagement in ESG practices: Are we looking at the right side? (2021, background): “Financial markets clearly reflect how investors collectively take positive account of environmental, social and governance (ESG) scores in their capital allocation decisions (Hartzmark and Sussman, 2019).”
Sustainable investing in equilibrium (2019, neutral): “Mutual fund flows respond to ESG-salient information, such as Morningstar sustainability ratings (Hartzmark and Sussman, 2019) and environmental disasters (Bialkowski and Starks, 2016).”
Corporate Social Responsibility and Market Efficiency: Evidence from ESG and Misvaluation Measures (2020, background): “This is also reflected in prior studies (Cao et al., 2020; Hartzmark and Sussman, 2019) as well as institutional sustainability reports (USSIF, 2020; GSIA, 2018) that demonstrate the growing interest in”
Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash (2020, neutral): “6 Using data from Morningstar on the sustainability of mutual funds that explores how their investments are made, Hartzmark and Sussman (2019) show evidence that investors value sustainability. 7 We also use an alternative investor preference measure of ES, which is the institutional ownership of a ”
Evaluation of strategic and financial variables of corporate sustainability and ESG policies on corporate finance performance (2021, background): “Many investors are attracted to sustainable investing due to their altruistic motives (Hartzmark and Sussman 2017; Riedl and Smeets 2017), the notion that investing their money in assets in ones which both aim to provide positive financial returns and also makes a positive impact in the wider world…”