In March of 2016, Morningstar first published sustainability ratings (globes), for over 20,000 mutual funds. The worst 10% of funds from a sustainability perspective were rated one globe, while the best 10% were rated five globes.
This paper1 finds that the low-sustainability funds subsequently experienced net outflows of more than USD 12 billion, while the high-sustainability funds received net inflows of more than USD 24 billion. From this, they conclude that sustainability matters to investors. No significant differences between funds with two, three or four globes are found, indicating that investors focus on extreme outcomes.
Interestingly, the study finds no evidence that high-sustainability funds outperform low-sustainability funds. The results suggest that investors care about sustainability, either because they expect this leads to better performance, or because they consider it intrinsically important.
1 Hartzmark & Sussman, “Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows”, working paper, 2018.
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