Sustainability Preferences Under Stress: Evidence

from COVID-19

Robin Döttling and Sehoon Kim∗

*
Robin Döttling, Erasmus University Rotterdam Rotterdam School of Management, Department of
Finance, Email: doettling@rsm.nl; Sehoon Kim, University of Florida Warrington College of Business, De-
partment of Finance, Insurance, and Real Estate, Email: sehoon.kim@warrington.ufl.edu.
We thank an anonymous referee, Vikas Agarwal, Rui Alburquerque, Jennifer Conrad (the editor), Gus-
tavo Cortes, Celine Fei, Mark Flannery, Andrei Goncalves, Samuel Hartzmark, Kewei Hou, Joel Houston,
Nitish Kumar, Tao Li, Xiaomeng Lu, Christian Lundblad, Pedro Matos, Andy Naranjo, Nimal Nimalen-
dran, Martin Oehmke, Lubos Pastor, David Rakowski, Sugata Ray, Luc Renneboog, Jay Ritter, Jacob Sagi,
Zacharias Sautner, Gill Segal, Elena Simintzi, Paul Smeets, Laura Starks, René Stulz, Yuehua Tang, Blair
Vorsatz, Alexander Wagner, Baolian Wang, Haibei Zhao, Dongyang Pan, and conference/seminar partici-
pants at the 2nd Sustainable Finance Forum, 2021 European Retail Investment Conference, Fall 2020 Virtual
Asset Management Seminar Series, University of North Carolina at Chapel Hill, University of Florida, Eras-
mus University Rotterdam, Seoul National University, VU University Amsterdam, and Concordia University
for helpful comments and suggestions. This paper was previously circulated under the title “Sustainability
Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19 ”.
 Abstract

We document fragile demand for socially responsible investments (SRI) by retail

mutual fund investors. Using COVID-19 as an economic shock, we show funds with

higher sustainability ratings experienced sharper declines in retail flows during the

pandemic, controlling for fund characteristics. The decline in retail SRI fund flows is

sharper than that of institutional flows, more pronounced when economies are hit

harder by COVID-19, and unlikely to be driven by fund performance, past flows and

size, or shifting investor attention. Corroborated by out-of-sample survey evidence,

our findings highlight high sensitivity of SRI demand by retail investors with respect

to income shocks.

Keywords: Socially Responsible Investing, Sustainable Investing, Retail Investors,

Mutual Fund Flows, COVID-19, SRI, ESG

JEL classifications: D62, G11, G14, G23, G41, I10, M14

1
I Introduction

Socially responsible investing (SRI) has grown rapidly over the recent decade,
reaching everyday investors and sparking a debate on the determinants of investor demand
for SRI. Recent studies highlight protection against downside risk provided by investments
with strong environmental, social, and governance (ESG) criteria, as well as pro-social
preferences that may drive investor demand for such investments. An important but
unanswered question related to this literature is how sensitive investor demand for SRI is
to changes in real economic conditions. We fill this gap by documenting fragility in SRI
demand among retail mutual fund investors in the face of economic distress.
As an ideal setting to study this question, we focus on the outbreak of the novel
coronavirus and the subsequent economic crisis that began in February 2020 to study the
impact of a sharp and unexpected deterioration in economic and market conditions on retail
mutual fund flows. The COVID-19 shock is particularly meaningful as a laboratory to study
demand for sustainable investments, as it triggered the first major economic crisis of its
magnitude and severity since the substantial growth in sustainable investing in recent years.1
Using the COVID-19 shock, we analyze investment responses by retail investors in
mutual funds with different ESG ratings. We hypothesize that retail SRI fund flows respond
sensitively to the COVID-19 shock based on a number of well-documented facts in the litera-
ture. First, retail SRI demand is often driven by pro-social preferences (see Riedl and Smeets
(2017)), rather than explicit public commitments to ESG often made by institutional in-
vestors.2 Pursuing such pro-social motives may be perceived as costly, especially in the face of
negative economic shocks. Moreover, retail investors have limited capital and tend to actively
reallocate investments across different funds (see, e.g., Frazzini and Lamont (2008), Del Guer-
cio and Tkac (2008), Ben-Rephael, Kandel, and Wohl (2012), Wang and Young (2020), and
1
See Baker, Bloom, Davis, Kost, Sammon, and Viratyosin (2020) and Ramelli and Wagner (2020), for
example, for recent studies documenting the exogenous and unprecedented nature of the COVID-19 shock.
2
Retail investors are also economically important, dominating the mutual fund space both in terms of
total net assets (i.e., over 61% of aggregate net assets) and dollar net flows (i.e., on average, close to 80% of
aggregate absolute net flows). See Figure A.1 in the Internet Appendix.

1
Ceccarelli, Ramelli, and Wagner (2021)). These facts motivate a hypothesis that the nega-
tive income shock and ensuing economic distress imposed by the COVID-19 crisis will have
shifted investor demand away from sustainable investments, consistent with retail investors
facing higher marginal costs of pursuing pro-social preferences during economic downturns.3
In a difference-in-differences framework using weekly retail fund flow and sustainabil-
ity rating data from Morningstar, we find that investor demand for SRI significantly weakens
under the economic stress induced by COVID-19. While funds with high Morningstar
sustainability ratings (i.e., high ESG funds) receive higher than average flows prior to the
COVID-19 crisis, these relatively high flows disappear after the pandemic-induced market
crash in mid-February, 2020.4 In fact, high ESG funds are significantly more likely to suffer
net outflows than the average fund during the COVID-19 crisis period compared to before.
Moreover, the decline in SRI fund flow persists after late-March, when the market rebounded
following the announcement of the U.S. stimulus package while the real economy continued
to deteriorate. This result is illustrated in Figure 1, plotting weekly average retail fund flows
over the period from January to April, 2020 for funds with different sustainability ratings.

[Insert Figure 1 here]

We conduct several additional tests to help draw inferences from the changes in SRI
demand by individual investors. First, we contrast them with institutional fund flows. In do-
ing so, our study departs from extant studies documenting resilient returns and demand for
sustainable investments (see, e.g., Albuquerque, Koskinen, Yang, and Zhang (2020), Ding,
Levine, Lin, and Xie (2021), and Pastor and Vorsatz (2020)), which often abstract from im-
portant investor heterogeneity crucial for understanding the nature of SRI demand and the
sources of its resilience or fragility (see, e.g., Oehmke and Opp (2020), Pastor et al. (2021b),
and Goldstein, Kopytov, Shen, and Xiang (2022)). In particular, differences between retail
3
In the Internet Appendix, we derive this hypothesis from a simple model that embeds non-pecuniary
utility from holding sustainable investments, drawing from equilibrium models of ESG investing (see Pastor,
Stambaugh, and Taylor (2021b)).
4
The pre-COVID trends are consistent with Hartzmark and Sussman (2019) and Ceccarelli et al. (2021).

2
and institutional investors have important implications for explaining the responses of retail
SRI flows to COVID-19. Unlike retail investors, institutional investors are subject to invest-
ment mandates that restrict the universe of stocks they can invest in and the variability of
their holdings (see Koijen and Yogo (2019)). Recently, institutions increasingly include ex-
plicit commitments to ESG issues in their mandates, often initiating ESG-related shareholder
engagement and demanding higher standards on corporate ESG disclosure (see, e.g., Dyck,
Lins, Roth, and Wagner (2019), Krueger, Sautner, and Starks (2020), Hoepner, Oikonomou,
Sautner, Starks, and Zhou (2022), Ilhan, Krueger, Sautner, and Starks (2021), and Barko,
Cremers, and Renneboog (2021)).5 Compared to retail investors, institutional investors
are also less financially constrained and more sophisticated in their investment strategies
(see Evans and Fahlenbrach (2012)).6 As such, institutional investors are less likely to
turn away from sustainable investments during market turbulence and economic downturns
(see, e.g., Cao, Titman, Zhan, and Zhang (2021) and Blanchett, Finke, and Reuter (2020)).
Consistent with these distinctions, we find that institutional flows into high ESG funds
do not decline in response to the COVID-19 shock, in contrast to retail flows. We highlight
differences between retail and institutional fund flow responses to COVID-19 in pooled
triple-difference regressions, which allows us to compare retail and institutional share classes
within the same fund by controlling for fund-by-week fixed effects that subsume all portfolio
level characteristics. Given the explicit ESG mandates and deeper pockets of institutional
investors, this result taken together with our main finding indicates that the decline in
SRI demand by retail investors was driven by the economic distress imposed by COVID-19.
We also exploit geographic heterogeneity in the severity of the economic impact of
COVID-19 to corroborate our interpretation. Our results are not only robust on average in
5
Many institutions publicize such commitments by joining global networks of proponents for responsible
investing, such as the Principles for Responsible Investment (PRI) (see Gibson, Glossner, Krueger, Matos,
and Steffen (2022)). Consistent with such investment mandates, Glossner, Matos, Ramelli, and Wagner
(2021) find no evidence that institutions tilt toward or away from sustainable investments during the crisis,
despite seeking shelter in hard measures of financial resilience.
6
Institutional share classes of mutual funds, which typically have lower expense ratios, are offered to
capital-rich investors with high minimum investment requirements of $200,000 or more.

3
an international sample of open-end funds extended beyond our baseline U.S. sample, but
also more pronounced for funds sold in countries with stringent restrictions (e.g.,
lockdowns) or low economic growth during COVID-19. In other words, the ESG fund flow
responses are more negative when the real economic effects of COVID-19 are more severe.
In exploring other potential channels, we first exclude explanations based on
conventional factors known to explain fund flows by directly controlling for a host of fund
characteristics related to size, expenses, performance, style, and star ratings, combined with
a rich set of granular fixed effects. We further inoculate our results from the effects of noise
and outliers by normalizing flows within fund size deciles. We also show the results are not
driven by differences in past performance or contemporaneous return chasing strategies, nor
by differences in past flows across funds with different sustainability ratings. Our results are
also robust to controlling for shifts in flows into index funds or healthcare/technology sector
funds around the shock. We also find no evidence of increased fund entry during our sample
period, indicating that greater competition for SRI flows is not a likely culprit either.
A plausible alternative explanation is that COVID-19 served as a salient event that
shifted the attention of retail investors away from sustainable investments toward other
assets. Consistent with this channel, Ozik, Sadka, and Shen (2021) show that retail trading
activity increased sharply during COVID-19 lockdowns, especially among stocks with
high COVID-19 related media coverage. We explore this channel in three ways. First, we
test whether the post-pandemic drop in ESG fund flow is more pronounced for funds with
higher pre-pandemic flow-performance sensitivity as a proxy for ex-ante fund level investor
attentiveness to salient information about the fund. Second, we extend our sample period
to compare pre-pandemic ESG fund flows with post-pandemic flows during subperiods
when most U.S. states ended lockdowns and reopened their economies, when vaccine
developments materialized, and when retail investors prominently traded speculative assets
at the center of social media attention. Finally, we correlate ESG fund flows with measures
of aggregate retail stock trading activity. Across these tests, we find no evidence that ESG

4
fund flows around the COVID-19 crisis were negatively associated with indicators of retail
investor attention to stocks, suggesting that the markets for SRI and speculative investments
may accommodate distinct groups of investors. However, conclusions regarding investor
composition in these different markets cannot be definitively made without more granular
information regarding retail investor portfolios, and we leave this for future research.
Another possibility is that retail investors lowered their expectations about the future
performance of investments around the COVID-19 shock (see Giglio, Maggiori, Stroebel,
and Utkus (2020)). This may have contributed to a shift away from ESG funds during
the crisis. Because it is difficult to infer changes in beliefs from fund flows alone, we rely on
indirect out-of-sample evidence from an online survey experiment designed in the spirit of
Chinco, Hartzmark, and Sussman (2022) to elicit revealed preference for ESG investing from
a pool of retail investor participants recruited from the online platform Prolific. The survey
is comprised of (i) a repeated experiment in which participants choose investment allocations
based on hypothetical income shocks as well as information about the sustainability
ratings and returns of two different mutual funds, and (ii) a series of questionnaires
regarding beliefs and expectations about sustainable investments. With the caveat
of an out-of-sample survey, our experiment highlights that income shocks can significantly
and negatively impact SRI demand by individuals, underscoring the real economic
effects of COVID-19 as a potentially important channel for its impact on SRI fund flows.
Although the survey was conducted after some of the effects of COVID-19 were revealed,
the responses also indicate that retail investors do not expect sustainable investments
to perform worse after COVID-19 than before, which is inconsistent with concerns that
changes in return expectations may have driven the fall in SRI demand during the crisis.
Our study is closely related to the literature that examines how different investor
objectives drive sustainable investment demand. A large body of research highlights the role
of social capital in mitigating firm downside risk (see, e.g., Lins, Servaes, and Tamayo (2017)
and Albuquerque, Koskinen, and Zhang (2019)). For example, investors view climate change

5
as an important source of risk (see, e.g., Krueger et al. (2020) and Ilhan et al. (2021)). This
risk is priced by markets (see, e.g., Bolton and Kacperczyk (2021), Baldauf, Garlappi, and
Yannelis (2020), and Bernstein, Gustafson, and Lewis (2019)), and investors seek strategies
to hedge against this risk (see, e.g., Engle, Giglio, Kelly, Lee, and Stroebel (2020) and Giglio,
Kelly, and Stroebel (2021)). In the context of such risks, the impact of income shocks on SRI
demand is ambiguous: On one hand, investors may demand liquidity during bad times and
sell better-performing sustainable investments, while on the other hand, increased risk aver-
sion may induce them to seek shelter in these assets. Another strand of literature documents
non-pecuniary pro-social motives for SRI. For example, sustainable fund flows are less volatile
and less sensitive to past negative returns (see, e.g., Bollen (2007) and Renneboog, Ter Horst,
and Zhang (2011)), and social preferences or signals often outweigh financial motives in SRI
decisions (see, e.g., Riedl and Smeets (2017) and Bauer, Ruof, and Smeets (2021)). Indeed, it
has been shown that salient information on sustainability attracts fund flows (see, e.g., Hartz-
mark and Sussman (2019) and Ceccarelli et al. (2021)). Under such non-pecuniary motives,
SRI may be sensitive to income shocks akin to demand for luxury goods (see Bansal, Wu,
and Yaron (2021)). In fact, recent studies model the mix of such heterogeneous investors as
a crucial ingredient in understanding SRI demand (see, e.g., Pastor et al. (2021b), Pedersen,
Fitzgibbons, and Pomorski (2021), Oehmke and Opp (2020), Humphrey, Kogan, Sagi, and
Starks (2021), and Goldstein et al. (2022)). We contribute to this literature by highlighting
the importance of economic stress in the sustainability of SRI demand by retail investors.
Our work also complements recent studies investigating the consequences of COVID-
19 on sustainable investments, who document resilient returns and flows to high ESG assets
during the crisis (see, e.g., Albuquerque et al. (2020), Ding et al. (2021), and Pastor and
Vorsatz (2020)). Pooling retail and institutional funds, Pastor and Vorsatz (2020) argue that
ESG fund flows remained stable during the crisis based on cumulative flows after the onset of
the crisis. While this is an important finding, this interpretation is not based on a compari-
son of fund flows after the COVID-19 shock relative to before. A key distinction of our study

6
is that we formally compare pre-COVID and post-COVID fund flows in a difference-in-
differences framework, and also across different investor groups by cleanly treating retail and
institutional share classes as separate funds, allowing us to uncover fragility in retail SRI fund
flows. However, their finding is not inconsistent with ours, which shows that when retail and
institutional investors are pooled together, high ESG funds do continue to attract more flows
than other funds after the COVID-19 shock, but to a lesser extent than before.7 This inter-
pretation is also consistent with subperiod univariate analysis by Pastor and Vorsatz (2020),
which indicate that the gap in flows between high and low ESG funds narrowed by half.
Distinct from these studies, we highlight a source of fragility in SRI demand
stemming from investor heterogeneity that is important to understanding determinants of
SRI demand, namely that retail investors are more sensitive to real economic shocks than
institutional investors. Understanding retail SRI preferences is also important given
increasing market participation by retail investors (see, e.g., Barber and Odean (2001), Cen
(2019), Kalda, Loos, Previtero, and Hackethal (2021), and Ozik et al. (2021)).8 In the
long-term, our finding implies a potentially broader shift in investor preferences under
prolonged economic distress, due to potential externalities from retail flows that may
weaken institutional ESG commitment more broadly.

II The COVID-19 Crisis

In early 2020, the coronavirus pandemic, or COVID-19, brought a major shock

to the global economy, spreading from a regional health crisis in Wuhan, China, to a global
crisis within a few months. The crisis disrupted the real economy and financial markets with
unprecedented speed, and triggered a stock market crash in mid-February (see, e.g., Baker
et al. (2020) and Ramelli and Wagner (2020)). Numerous studies have shown the substantial
7
See Figure A.2 in the Internet Appendix
8
Consistent with our results, Glossner et al. (2021) document that retail stock investors at an online
discount brokerage platform invested differently from institutional investors during the COVID-19 crash,
exhibiting reduced interest in environmental and social stocks.

7
impact of COVID-19 on asset prices and investor expectations in great detail, both during
the market crash and after stimulus policy interventions announced in mid-March (see,
e.g., Alfaro, Chari, Greenland, and Schott (2020), Croce, Farroni, and Wolfskeil (2020),
Fahlenbrach, Rageth, and Stulz (2021), Giglio et al. (2020), and Gormsen and Koijen (2020)).
Given the ramifications of the COVID-19 pandemic for labor, healthcare, and social
unrest, the implications of the COVID-19 crisis on ESG investing − one of the fastest
growing investment areas in recent years − have garnered much attention in the media and
among investors. Many practitioners anticipate even faster growth in sustainable investing
in the post-COVID era, based on evidence of resilient performance by socially responsible
investments during the crisis (see, e.g., Albuquerque et al. (2020), Ding et al. (2021),
Ferriani and Natoli (2020), and Pastor and Vorsatz (2020)).9 Distinct from this outlook, we
hypothesize that the unique nature of the COVID-19 crisis has disproportionately adverse
implications for SRI demand by retail mutual fund investors, individuals who are vulnerable
to economic shocks and comprise a significant fraction of the mutual fund investor base.
A unique aspect of the COVID-19 crisis, in contrast to previous financial crises such
as the great recession of 2008, is that it originated outside the financial sector and had an
immediate impact on the real economy by directly affecting consumption and business
revenues through quarantines and lockdowns (see, e.g., Alekseev, Amer, Gopal, Kuchler,
Schneider, Stroebel, and Wernerfelt (2022), Baker, Farrokhnia, Meyer, Pagel, and Yannelis
(2020a), Fahlenbrach et al. (2021), and Horvath, Kay, and Wix (2021)). Consequently, it
affected labor demand, resulting in pay cuts and job losses (see, e.g., Cajner, Crane, Decker,
Grigsby, Hamins-Puertolas, Hurst, Kurz, and Yildirmaz (2020), Coibion, Gorodnichenko,
and Weber (2020b), Forsythe, Kahn, Lange, and Wiczer (2020), and Cajner, Crane,
Decker, Hamins-Puertolas, and Kurz (2020)). In turn, consumers experienced substantial
income shocks, which further impacted their consumption behavior as well as expectations
about future employment and consumption (see, e.g., Baker, Farrokhnia, Meyer, Pagel, and
9
See comments by industry leaders such as BlackRock, JPMorgan, Morgan Stanley, and UBS. Also see
media coverage by CNBC, Forbes, the Wall Street Journal, and Morningstar 2020 Q1/Q2 reports.

8
Yannelis (2020b), Coibion, Gorodnichenko, and Weber (2020a), and Granja, Makridis,
Yannelis, and Zwick (2020)). It has been widely documented that consumers curtailed
spending most dramatically in non-essential areas such as travel and clothing. All the
while, perceived economic uncertainty, which skyrocketed early during the crisis, remained
at historically high levels (see Altig, Baker, Barrero, Bloom, Bunn, Chen, Davis, Leather,
Meyer, Mihaylov, Mizen, Parker, Renault, Smietanka, and Thwaites (2020)).

A Hypothesis

An important implication of the nature of the COVID-19 shock is that it heavily

affects demand for costly but non-essential goods. It therefore provides a laboratory for
testing whether sustainable investments by retail investors are sensitive to economic shocks.
As we formally show in the Internet Appendix, this prediction arises from a simple model
that embeds non-financial motives for such investments.10 The framework draws from
equilibrium models of ESG investing in which investors weigh the non-pecuniary utility
from holding sustainable investments against earning lower expected returns (see, e.g.,
Pastor et al. (2021b) and Pastor, Stambaugh, and Taylor (2021a)). The model predicts
that investors prioritize financial returns in the face of an economic shock as their marginal
utility of consumption increases. To examine this prediction, we focus on retail mutual
fund flows as a proxy for individual investor demand for socially responsible investments.
In the following section, we describe how we collect our data and construct our sample.

III Data and Sample Overview

A Data

We obtain data for all open-end domestic U.S. equity mutual funds from a
survivorship-bias-free database provided by Morningstar Direct, which contains a rich array
10
See Section A.IV in the Internet Appendix.

9
of information on funds such as fund flows, returns, net assets, expense ratios, Morningstar
star ratings, and most importantly, Morningstar sustainability ratings. To construct our
sample, we begin with all funds during the period from January 2019 to April 2020. We
first collect daily data on fund returns, total net assets, and dollar net flows, and aggregate
them to weekly values to reduce noise in the daily series by taking the latest total net asset
value of the week and summing returns and net flows over the week. We also compute prior
month’s and previous 12 months’ returns, as well as Fama and French (2015) five-factor
adjusted alphas over 12 month rolling windows. We also obtain information on the fund’s
Morningstar global category, star rating, age (i.e., years since inception date), expense ratio,
and an indicator variable for whether the fund share class is offered to institutional investors.
To measure the perceived sustainability of funds by investors, we rely on the Morn-
ingstar sustainability rating, a monthly reported moving average of the trailing 12 months’
portfolio level historical sustainability score, computed as the weighted average of firm level
ESG Risk Ratings provided by Sustainalytics.11 Morningstar assigns funds a discrete “globe
rating”, which ranges from one globe (lowest sustainability) up to five globes (highest sustain-
ability).12 This sustainability rating, which was introduced in 2016, is prominently displayed
to investors in Morningstar’s reports and freely available to investors through the Morn-
ingstar website. The introduction of the rating has also been shown to affect both retail and
institutional fund flows, where funds with five (one) globe ratings receive greater (smaller)
than average flows (see Hartzmark and Sussman (2019)). Motivated by this finding, we iden-
tify funds with five globes as “high ESG funds” and funds with one globe as “low ESG funds”.
To arrive at our main sample, we first retain funds that have at least one non-missing
daily flow value during a given week. Following Kacperczyk, Van Nieuwerburgh, and Veld-
kamp (2014) and Franzoni and Schmalz (2017), we further exclude funds that hold less than
80% of their assets in stocks in the previous quarter to remove balanced funds, and also drop
11
Sustainalytics ESG Risk Ratings measure a firm’s unmanaged exposure to ESG risks, such that firms
with better ESG practices and less controversial businesses obtain better scores. See Sustainalytics website.
12
See Morningstar Sustainability Rating Methodology.

10
funds with less than $5 million in assets under management at the end of the previous week to
avoid incubation bias. For funds that have multiple share classes, we aggregate the data and
retain one observation per fund-week (see, e.g., Kacperczyk et al. (2014) and Hartzmark and
Sussman (2019)). Total net assets and dollar net flows are summed across share classes. Re-
turns are computed as the weighted average, weighted by the previous week’s share level net
assets. Expense ratio, prior month’s and previous 12 months’ returns, and alphas are calcu-
lated as their means. The fund’s global category and age are based on the oldest share class.
Morningstar star ratings and sustainability ratings are those of the largest share class. If the
fund offers both retail and institutional share classes, we separately aggregate share-level
information as one retail fund and one institutional fund. All continuous variables are win-
sorized at the extreme 1% levels to remove the effects of outliers. After retaining funds with
valid Morningstar sustainability ratings, our final sample consists of 2,720 retail funds and
2,421 institutional funds over the period from the week ending January 4, 2020 to the week
ending April 25, 2020. The main focus of our study is on the sample of retail mutual funds.

B Sample Overview and Preliminary Results

Table 1 provides a summary of our sample of retail mutual funds. Our main variable is
net flow, which is computed weekly as a fraction of the fund’s total net assets in the previous
week. We normalize net flows as the percentile ranking of flows among funds within the same
net asset size-sorted decile in a given week, to eliminate the impact of noise and outliers in raw
net flows as well as systematic heterogeneities in flows across funds of different size (see, e.g.,
Spiegel and Zhang (2013) and Hartzmark and Sussman (2019)). Alternatively, we present
results based on raw net flows, which are better suited to interpret economic significance.

[Insert Table 1 here]

Panel A describes how the data is distributed. Panel B classifies funds into groups
according to their Morningstar sustainability ratings: High (five globes), above average

11
(four globes), average (three globes), below average (two globes), and low (one globe). For
each sustainability rating, the mean for each variable is shown at the top of the panel. We
also report the difference of means between high and low sustainability funds for each
variable, along with the t-statistic associated with the difference. The high−low spreads
are shown for the full sample period from the week ending January 4, 2020 to the week
ending April 25, 2020, and for three sub-periods: The “pre-COVID” period which starts at
the beginning of the year and ends in the week prior to the onset of the stock market crash
on February 20; the “post-COVID, crash” period from the week of February 20 to March
21 before the approval of the COVID-19 stimulus package by the U.S. government; and the
“post-COVID, stimulus” period after the announcement of the coronavirus rescue package.
Unconditionally, high ESG funds attract higher weekly fund flows compared to low
ESG funds, consistent with Hartzmark and Sussman (2019). High ESG funds also have
superior past performance, are smaller in size, cheaper in terms of expenses, and younger in
age.13 Validating the globe ratings as measures of fund sustainability, high ESG funds rank
lower in their ESG risk scores within their Morningstar global categories, particularly on
environmental aspects, and are more likely to reflect ESG-related mandates in their
prospectuses or fund names and have “low carbon” designations from Morningstar.14
After the beginning of the market crash induced by COVID-19, the differences in
both normalized and raw net flow between high and low sustainability funds disappear, while
other characteristics maintain the direction and significance of their differences. For example,
high ESG funds receive 0.2 percentage point greater net flows per week compared to low
ESG funds prior to the COVID-19 shock, significant with a t-statistic of 5.8. However, the
difference becomes economically and statistically indistinguishable from zero after the market
13
Note that higher past realized returns may reflect unexpected increases in environmental concerns and
are not inconsistent with lower expected returns going forward (see Pastor et al. (2021a)).
14
To determine whether the fund has an ESG-related mandate, we flag funds with mandates on envi-
ronmental concerns, carbon footprint reduction, renewable energy, gender issues, community development,
or ESG shareholder engagement in their prospectuses, or funds with names that include the following
strings: “SUSTAIN”, “GREEN”, “ESG”, “CSR”, “RESPONSIB”, “CLIMATE”, “WARMING”, “ENVI-
RONMENT”, “SOCIAL”, and “GOVERNANCE”. Morningstar low carbon designations are based on port-
folio level fossil fuel involvement and carbon risk scores from Sustainalytics (see Ceccarelli et al. (2021)).

12
crash begins. This marked shift in net flow also persists after the stimulus package approval.
This key preliminary result is illustrated in Figure 1, where we plot weekly average
(a) normalized net flows and (b) raw net flows of retail funds with high, average, and low
sustainability ratings as of December, 2019. Parallel trends across sustainability rating
groups prior to the shock as well as the differential effects of the shock are both clearly
observed, a point we inspect further to validate our difference-in-differences framework.
Overall, the preliminary findings suggest a clear shift in investor demand away from
socially responsible funds among retail mutual fund investors. We interpret this as
reflecting a high sensitivity of SRI demand by individual investors to income shocks. Next,
we investigate this channel and other potential explanations more rigorously in
difference-in-differences analyses with a host of controls and fixed effects.

IV Results

A Main Results

To test whether flows into funds with higher sustainability ratings are differentially
affected by the COVID-19 crisis, we estimate the following difference-in-differences
specification:

(1) NORM FLOWi,t = β1 · HIGH ESGi × COVIDt + β2 · LOW ESGi × COVIDt

+ β3 · HIGH ESGi + β4 · LOW ESGi

+ γ 0 · Xi,t + µj,t + ηy,t + θg + i,t

The baseline dependent variable, NORM FLOWi,t , is the normalized net flow of fund i in
week t. HIGH ESGi and LOW ESGi are dummy variables that indicate whether a fund has a
high (five globes) or low (one globe) sustainability rating as of December 2019, respectively.15
15
Sustainability ratings are relatively sticky, consistent with Hartzmark and Sussman (2019), and the
results are robust to using a fund’s sustainability rating lagged by one month.

13
COVIDt is an indicator variable equal to one for weeks ending on February 22, 2020 or
after, and zero otherwise. The vector Xi,t collects fund-level controls (i.e., past returns, log
of total net assets, expense ratio, and star rating upgrades and downgrades). We control for
a fund’s age, style and group-specific time effects by including vintage year-by-week fixed
effects, ηy,t , and fund category-by-week fixed effects, µj,t . We also control for sustainability
rating fixed effects, θg , or fund fixed effects instead. The key coefficients of interest
are β1 and β2 , which estimate how much more flows high or low sustainability funds receive
after the onset of the COVID-19 shock relative to before, as compared to the average fund.
Table 2 presents the regression results. Columns 1 to 5 in Panel A report results from
using normalized net flows as the dependent variable over our main sample period, varying
the configuration of fixed effects and controls. Across all specifications, we find a negative
and statistically significant coefficient on HIGH ESG × COVID, indicating that mutual
funds with the highest sustainability rating receive lower net inflows during the COVID crisis
compared to pre-COVID, relative to funds with average ratings. Column 1 shows that high
ESG funds rank 3 percentage points higher in their net flows within their size groups prior to
the crisis, consistent with Hartzmark and Sussman (2019). However, their percentile rank-
ings decline by 6 percentage points more after the onset of the crisis. Columns 2 to 5 show
that these results are robust to controlling for sustainability rating or fund fixed effects, past
returns (one or 12 months) or Morningstar star ratings (changes or levels) known as impor-
tant determinants of retail investment flows (see, e.g., Sirri and Tufano (1998), Del Guercio
and Tkac (2008), and Pastor and Vorsatz (2020)), and their interactions with the COVID cri-
sis dummy. Column 6 also shows similar estimates when comparing post-COVID flows to a
longer pre-COVID period starting in November 2019. The last two columns further indicate
that these results are not merely driven by a relative decline, but rather by an absolute decline
in high ESG fund flows.16 Column 7 shows a 0.2 percentage point greater decrease in weekly
net flows as a fraction of total net assets for high ESG funds compared to average funds, but
16
This is also seen in Table A.3 where we examine fund flow dynamics around the COVID-19 shock.

14
an economically and statistically insignificant differential change in flows for low ESG funds,
indicating that the COVID-19 shock disproportionately impacted flows to high ESG funds.
Given flows are measured at weekly frequency, this is an economically large effect. Column
8 shows that relative to average funds, the likelihood of experiencing outflows increases by 8
percentage points more for high ESG funds and 4 percentage points less for low ESG funds.17
These results suggest that high ESG funds lose their luster during the COVID crisis.

[Insert Table 2 here]

In Panel B of Table 2, we further split the COVID period into two sub-periods to
disentangle responses during the market crash period from February 22 to March 21, 2020,
when the S&P 500 declined in value by more than 30%, from the subsequent market
rebound through April 25, 2020 following the passing of the CARES Act on March 23 that
provided a $2.2 trillion stimulus to the U.S. economy. During both periods the economy
remained weak, with unemployment insurance claims peaking in the beginning of April and
remaining elevated through May.18 The results in Panel B show that the drop in net flows
into high ESG funds relative to other funds persists during both the crash and the stimulus
period, consistent with a fundamental shift in retail demand for sustainability that is not
merely driven by the ubiquitous but temporary sell-off during the market crash.
A potential concern for our difference-in-differences methodology is that there may be
confounding differences in fund flow trends between high ESG funds and other funds. There-
fore, we validate our empirical strategy by inspecting parallel trends in high and low ESG
fund flows, as such differences, if any, would be most palpable between these funds. Figure 2
plots coefficients along with their 95% confidence intervals from the following regression.

+9 X
X 5
(2) NORM FLOWi,t = βg,k · d[g]i × d[T + k]t + γ 0 · Xi,t + µj + ηy + θg + ωt + i,t
k=−6 g=2
17
Table A.4 in the Internet Appendix also shows that high ESG funds experience both greater outflows
and smaller inflows after the COVID-19 shock, by interacting the explanatory variables with a negative net
flow dummy.
18
See U.S. Employment and Training Administration Unemployment Insurance Weekly Claims Report.

15
 [Insert Figure 2 here]

The dependent variable is normalized net flow, and d[T + k]t denote dummy variables
indicating whether the fund-week observation is k weeks from the week ending February
22, 2020. The dummy for the first week of the sample is omitted. d[g]i denote dummy
variables indicating whether the fund is assigned a g globe rating by Morningstar, where
g ranges from two to five. The dummy for the group of funds with the lowest sustainability
rating (i.e., one globe) is omitted. The baseline control variables as well as fund category,
vintage year, sustainability rating, and week fixed effects are included in the regression.
The plotted coefficients are the slopes on the weekly dummies interacted with the indicator
variable for the group of funds with the highest sustainability rating, together describing
the dynamics of high ESG fund flows relative to the omitted low ESG fund flows from six
weeks prior to nine weeks after the onset of the COVID crisis.19 Figure 2 shows that prior
to the crisis, high and low ESG funds maintain their relative fund flows in parallel, as none
of the coefficients are statistically different from zero. Around the onset of the crisis, we
observe a clear divergence where high ESG fund flows drop significantly relative to low ESG
fund flows. The parallel pre-event trend mitigates concerns that confounding differences
may be driving the large subsequent divergence in fund flows between high and low
ESG funds, complementing the unconditional average net flow trends shown in Figure 1.20

B Corroborating Results

These results are consistent with a decline in demand for sustainable investments in
response to economic stress induced by COVID-19, indicating that retail investor demand
for SRI is highly sensitive to income shocks. Illustrative evidence from internet search
traffic data supports this view. Figure 3 plots weekly moving averages of Google search
19
Table A.1 in the Internet Appendix tabulates the regression results.
20
Tables A.2 and A.3 in the Internet Appendix, which report cross-sectional variation in fund flows across
sustainability rating groups within different subperiods and time-series variation in fund flows within each
sustainability rating group, respectively, further corroborate the parallel trend inspection.

16
trends on topics related to sustainability (e.g., sustainability, global warming, ESG) and
economic outcomes (e.g., stock market, furlough, financial crisis), against search trends for
the coronavirus. It is clear that search traffic for sustainability related topics dropped
around the onset of the COVID-19 crisis, coinciding with a surge in interest on the
coronavirus and its economic ramifications. These trends are consistent with a negative
shock to demand for sustainability early into the COVID-19 crisis. In this section, we
provide several pieces of evidence corroborating this interpretation.

[Insert Figure 3 here]

1 Retail vs. Institutional Fund Flows

First, we contrast retail fund flows to institutional fund flows. This comparison is
useful because retail and institutional investors are distinct in a number of ways that have
important implications for their sustainable investment demand. Most important is the fact
that many institutional investors are subject to investment mandates that limit the universe
of stocks they are allowed to invest in and the extent their holdings vary over time (see Koijen
and Yogo (2019)). Recently, institutions increasingly include commitments to ESG in their
mandates and make these commitments public, often initiating shareholder ESG engagement
and influencing corporate ESG disclosure policies (see, e.g., Dyck et al. (2019), Krueger et al.
(2020), Hoepner et al. (2022), Ilhan et al. (2021), and Barko et al. (2021)). Retail investors
typically do not share this distinction, and their ESG investments are more often driven
by pro-social preferences (see Riedl and Smeets (2017)). Institutional investors are also
less financially constrained and more sophisticated in their investment strategies than retail
investors (see Evans and Fahlenbrach (2012)). All of this makes institutions less likely to
turn away from sustainable investments during market turbulence and economic downturns,
compared to retail investors. Consistent with this conjecture, Glossner et al. (2021) find no
evidence that institutions tilt toward or away from sustainable investments during the crisis,
despite seeking shelter in hard measures of financial resilience. Therefore, we expect institu-

17
tional SRI flows to be less affected by the COVID-19 economic shock than retail SRI flows.
Consistent with these notions, Figure 4 shows that, in contrast to retail fund flows,
institutional flows into high ESG funds do not decline significantly during the COVID-19
crisis and remain higher compared to low ESG institutional fund flows throughout both the
market crash and post-stimulus periods. This pattern is confirmed clearly with normalized
net flows, where the relative flow advantage of high ESG funds is shown to continue. If
anything, raw net flows from institutions into low ESG funds drop more sharply during the
market crash, before recovering to pre-COVID levels during the post-stimulus rebound.21
These patterns stand in sharp contrast to those of retail fund flows, consistent with the
differences in operational and financial constraints faced by institutional and retail investors.
To formally test this comparison, we estimate a triple-difference specification augmented
from Equation (1) by further interacting a dummy variable, RETAILi , indicating whether the
fund is a retail or institutional fund, for the pooled sample of retail and institutional funds.22

[Insert Figure 4 here]

Table 3 presents the results. The coefficient on the triple-interaction term, HIGH ESG
× COVID × RETAIL, shows that the difference between institutional and retail flow re-
sponses to COVID-19 is economically and statistically significant. The drop in high ESG re-
tail flows is greater than the drop in high ESG institutional flows by 3.6 to 3.9 percentile ranks
within fund size groups, or 0.21 to 0.25 percentage points as a fraction of total net assets. In
columns 2 and 4, we further include fund-by-week fixed effects. These specifications are iden-
tified from variation within funds that offer both institutional and retail share classes, reduc-
ing the number of observations from 72,087 to 49,610. Comparing retail flows to institutional
21
We further confirm this pattern by estimating the difference-in-differences specification in Equation (1)
on the sample of institutional funds, analogous to the analysis of retail fund flows. Results in Panel A of
Table A.5 in the Internet Appendix are consistent with the patterns in Figure 4.
22
Similar to Figure 2, we plot weekly coefficients from an augmented triple-difference version of Equation 2
further interacted with RETAILi , in Figure A.3 of the Internet Appendix (also tabulated in Table A.1). This
figure shows that retail and institutional flows into high ESG funds move roughly in parallel prior to the onset
of the COVID-19 crisis, but diverge afterwards as retail investors invest significantly less in high ESG funds
in response to the COVID-19 shock. An inspection of these trends validates the triple-difference framework.

18
flows of the same fund in a given week, we confirm that the differences are robust even control-
ling for any observable and unobservable time-varying characteristic of a given fund portfolio.

[Insert Table 3 here]

Taken together, the drop in SRI demand by retail investors following the COVID-19
shock stands in marked contrast with continued demand by institutional investors, who are
subject to stronger investment mandates and have deeper pockets. These differences indicate
that the shift in retail demand away from ESG is driven by tightening economic conditions.

2 Severity of Economic Impact

To further corroborate this interpretation, we extend our baseline sample to include

non-U.S. open-end retail mutual funds, covering 13,155 funds sold in 39 countries, and
exploit cross-country variation in the severity of the economic shock imposed by COVID-19.
First, we begin by documenting the robustness of our baseline results across alterna-
tive regional subsamples consisting of (i) funds sold in European countries,23 (ii) all non-U.S.
funds, and (iii) all open-end funds worldwide. In these regressions, we additionally control
for country fixed effects to eliminate the effects of any country level confounding factors dur-
ing our sample period.24 As reported in Panel A of Table 4, we find that our main finding is
robust in all of the international samples. For all geographical subsamples, we find negative
and statistically significant coefficients on HIGH ESG × COVID. Moreover, the magnitudes
of the coefficients are large in all samples, albeit smaller in Europe, indicating that mutual
funds with the highest sustainability rating receive similarly lower net inflows during
the COVID crisis compared to the pre-COVID period regardless of where they are sold.

[Insert Table 4 here]

23
The European sample includes funds sold to investors in Austria, Belgium, the Czech Republic, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Liechtenstein, Malta, the Netherlands, Norway, Portugal,
Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and cross-border Europe.
24
In regressions for non-U.S. funds, we exclude expense ratios from the controls given that this information
is missing for most non-U.S. funds because only the U.S. requires mandatory annual reporting of this variable.

19
 To strengthen our interpretation, we then examine cross-country variation in
the severity of the COVID-19 economic shock. To do so, we employ data from the Oxford
COVID-19 Government Response Tracker (OxCGRT) compiled by the University of Oxford,
which collects publicly available information on 18 indicators related to governmental re-
sponses to COVID-19 for 180 countries such as restriction stringency (e.g., lockdowns, school
closures, travel and movement restrictions), economic support (e.g., income support, debt
relief), and health system policies, which are aggregated into common indices reported in
scores ranging from 1 to 100. Among these indices, we use the stringency and economic sup-
port indices, and sort countries into high or low buckets with respect to the median country.25
We then conduct subsample tests based on the hypothesis that countries with more stringent
restrictions are economically impacted more severely by COVID-19, especially when such
restrictions are not backed by enough economic support. Alternatively, we also compare
countries with lower versus higher GDP growth rates during the first two quarters of 2020. If
SRI demand by retail investors is highly sensitive to income shocks, it would be in countries
that are economically hit the hardest where declines in ESG fund flows are most severe.
The results are reported in Panel B of Table 4. In the first two columns, we run our
baseline difference-in-differences regression on subsamples consisting of funds sold in coun-
tries with stringent or lax restrictions. Alternatively, we pool the subsamples together and
further interact a country level STRINGENT dummy variable in a triple difference regres-
sion. As in Panel A, we additionally control for country fixed effects.26 The results indicate
that the decline in ESG fund flows are more pronounced in countries where the economic
impact of COVID-19 was stronger due to more stringent restrictions. The coefficient on
the interaction term, HIGH ESG × COVID, is negative and economically large in severely
impacted economies (i.e., −6.1), and several times larger than that in less affected economies
25
We average a country’s index value over the post-COVID period. The matched Morningstar-OxCGRT
sample covers 8,914 funds in 36 countries, excluding funds that are sold cross-border. See Table A.7 in the
Internet Appendix for an overview of this sample. The results are robust to dropping countries with less
than 10 funds.
26
To conserve space, we relegate results from the most stringent specifications with fund fixed effects to
the Internet Appendix in Table A.8, which remain largely robust.

20
(i.e., −1.2). The difference between these coefficients is also statistically significant, as shown
in p-values comparing coefficients across the subsamples as well as pooled triple interactions.
In columns 4 to 9, we further explore whether the contrast in post-COVID ESG
fund flows between countries with stringent and lax restrictions is more pronounced among
countries that provided little economic support. This additionally helps distinguish between
the real economic impact of COVID-19 from the effects of “stay-at-home” policies on investor
attention. Consistent with economic shocks as an important channel, we find that the
effects of restrictions on post-COVID ESG fund flows are more pronounced in countries that
lacked economic support (columns 4 to 6), but less pronounced in countries that provided
high levels of economic support (columns 7 to 9). In columns 10 to 12, we also examine
low versus high GDP growth subsamples, and similarly find that the impact of COVID-19
on ESG fund flows are more severe in countries with lower post-COVID economic growth.
With the caveat that there may be differences in the legal and regulatory settings of
funds across different countries, the results support the idea that ESG fund flow responses
to COVID-19 indicate a shift in investment demand driven by economic constraints.

C Other Potential Channels

In this section, we investigate alternative explanations for our results. In the analysis
above, we carefully control for fund characteristics, past returns, their interactions with
the COVID-19 shock, as well as a host of granular fixed effects. The normalization of fund
flows also helps us account for the effects of fund size.27 This sets a high bar for ex-ante
fund characteristics to account for our findings. Nonetheless, potential channels related to
fund performance, past flows and fund size, or changes in investor risk-preference, strategy,
and attention have important implications for fund flows and call for in-depth analysis.
27
The results are also robust to dropping funds with high exposures (greater than 50%) to basic materials,
energy, and utilities industries. We also examine fund entry and exit around the crisis, and find no evidence
of increased competition for ESG flows (see Figure A.4 in the Internet Appendix).

21
1 Fund Performance, Past Fund Flows and Fund Size

First, we ensure that our key results are not driven by past or contemporaneous
differences in performance or differences in past flows between high and low ESG funds.
We find that our results cannot be explained by ex-ante risk-adjusted fund performance or
market risk exposure, nor by investors following a “buying the dip” strategy according to
contemporaneous returns. We also document that our main findings are not driven by the
fact that high ESG funds experienced greater past flows. To conserve space, we report and
discuss the related robustness tests in the Internet Appendix.28

2 Changes in Allocation and Attention

Another potential explanation is that retail investors may have disproportionately

shifted their allocation or attention across different types of investments in response to
“salient news” regarding COVID-19 or other correlated events. For example, retail investors
in ESG mutual funds may have increasingly migrated to directly investing in stocks amid
rising interest in retail stock trading (see Ozik et al. (2021)). This shift may also be correlated
with the magnitude of the impact of COVID-19, partially explaining our findings.29
In Table 5, we explore this attention-related channel. In Panel A, we use the
magnitude of the fund’s flow-performance sensitivity during the year prior to the pandemic
as a proxy for fund level investor attention to salient information about the fund, to examine
whether high ESG funds with more attentive investors experienced a greater decline in
flows after COVID-19. We do this by including the triple interaction term between the high
ESG fund dummy variable, the post-COVID period dummy variable, and the fund’s flow-
performance sensitivity in our baseline fund flow regression. In the last two columns, we re-
place the sensitivity measure with a dummy variable indicating whether the fund is in the top
28
These results are reported in Tables A.9 and A.10 and described in Section A.II in the Internet Appendix.
29
We also test whether investors have changed their appetite for active rather than passive investing, or
turned their attention to sectors affected by COVID-19 (e.g., healthcare or technology). These results are
reported in Table A.11 in Section A.II in the Internet Appendix.

22
sensitivity quintile. In all specifications, the coefficient on the triple interaction term is neg-
ative and statistically insignificant, while the coefficient on the interaction term, HIGH ESG
× COVID, remains statistically significant and similar in magnitude to our main results
in Table 2. The results speak against a shift in attention by previously attentive investors.

[Insert Table 5 here]

In Panel B of Table 5, we examine whether retail investors moved out of ESG funds
and gravitated toward attention-grabbing stocks. Because we do not have data on whether
investors actually bought individual stocks at the expense of their ownership in funds,
we provide indirect evidence by showing whether high ESG fund flows declined when retail
stock trading spiked. To do this, we extend our sample period until March, 2021, and assign
indicator variables for key additional subperiods: REOPENING period when U.S. states
loosened lockdowns and business restrictions to stimulate their economies (i.e., weeks ending
May 2, 2020 to November 7, 2020); VACCINE development period beginning with announce-
ments of effective vaccines and applications for FDA approval (i.e., weeks ending November
14, 2020 to January 16, 2021); MEME STOCK period during which retail investors promi-
nently traded stocks and other speculative assets at the center of social media attention such
as GameStop or Dogecoin (i.e., weeks ending January 23, 2021 to March 20, 2021).30 These
time dummy variables are interacted with HIGH ESG and LOW ESG, and added to our
baseline fund flow regressions. The post-COVID crash and stimulus periods are included
as in our original specifications, and the pre-COVID period is the omitted time category.
First, we find that flows into high ESG funds no longer decline during the reopening
period, returning to their pre-COVID levels. Given how employment recovered during this
period after a significant decline in previous months (in contrast with the monotonic
upward trend in the U.S. stock market since March), this further supports the idea that
our baseline results are driven by economic distress rather than return chasing.31 Next, as
30
See The New York Times for U.S. state reopenings.
31
See monthly total non-farm employment reported by U.S. Bureau of Labor Statistics.

23
economic conditions continued to improve, we find that high ESG funds attracted even
more flows than before the crisis during the vaccine development period. Most importantly,
the renewed increase in high ESG fund flows continued even during the meme stock period
when retail investor interest in individual stocks reached its peak. This stands in contrast
with an attention shifting explanation, where one would expect high ESG fund flows to
drop when retail investor attention shifted to “meme stocks”.
To corroborate this result, we further exploit time-series data on aggregate retail
trading activity from the Trade and Quote (TAQ) database as a measure of retail investor
attention to the stock market. This measure is based on the algorithm of Boehmer, Jones,
Zhang, and Zhang (2021) who identify retail trades based on whether they receive
fractional penny price improvements, and is available at daily frequency as retail share
volume, number of retail trades, and retail dollar volume. We aggregate each retail trading
variable to weekly frequency and normalize them across the time-series by subtracting the
mean and dividing by the standard deviation. We then interact each normalized variable
with the HIGH ESG and LOW ESG fund dummy variables, and run regressions of
normalized net flow on the interaction terms. The regressions are run either on our
baseline sample period or the extended sample period that includes the meme stock period
during which retail trading activity was particularly high.
Panel C of Table 5 presents the results. In the base period, the coefficient on the
interaction term between HIGH ESG and retail trading activity is not statistically different
from zero. In the extended period, we find a positive and significant association between retail
trading and high ESG fund flows. These results are robust across all three measures of retail
trading. At the least, this indicates that changes in high ESG fund flows are not negatively
associated with retail trading, going against the notion that greater attention to individual
stock trading may have led to the decline in retail SRI fund flows around COVID-19.
Overall, these analyses lend further support to our interpretation that retail investors
reduced SRI demand in response to the economic strain induced by COVID-19, but show

24
little support for the idea that this is merely driven by investors shifting attention to different
segments of the market. The fact that retail trading and SRI fund flows do not substitute for
each other also suggests that these markets may accommodate distinct groups of investors.

D External Validity: Survey Evidence

However, it is difficult to directly preclude the effects of changes in investor beliefs

and expectations about firm fundamentals based solely on analysis of mutual fund flows.
We acknowledge this as a fundamental limitation of our study. Notwithstanding, we provide
out-of-sample survey evidence to help delineate the different channels driving SRI demand.

1 Main Survey Experiment

In November 2021, we recruited 1,000 participants through Prolific, an online survey

recruitment platform that provides access to a large and high-quality pool of participants. Af-
ter excluding participants without prior investment experience and participants who failed an
initial comprehension check and a mid-survey attention check, the final sample consists of 808
survey responses. Panel A of Table 6 provides summary statistics of the participants. 63%
of our participants are male, their average age is 39 years, 95% have English as their native
language, 6% are unemployed, and their average annual income is $77,416.32 Only 3% of the
participants answered that they previously held professional occupations that required them
to trade financial instruments, indicating that the sample well represents U.S. retail investors.

[Insert Table 6 here]

We design a survey experiment to elicit revealed preference for ESG investing from
our participants, following the approach of Chinco et al. (2022). To each participant, we
present six different hypothetical scenarios with information about the sustainability ratings,
returns, and volatility of two different mutual funds, and ask participants how they would
32
We ask participants for their income brackets, and take the bracket’s midpoint as their income. The
median participant’s income bracket is $50,000 to $75,000.

25
allocate their financial investments between the two funds given a hypothetical shock to their
income. One fund has a high (i.e., five globe) sustainability rating and the other fund has
an average (i.e., three globe) sustainability rating, presented in the same way as displayed to
investors by Morningstar. The income shock takes on values of 0% (i.e., no income change),
−25%, or −50%, as a percentage of current income. Participants are also presented with the
average annual returns and volatility of the funds over the past ten years, and are instructed
to assume that those figures are informative about the funds’ future performance. The high
ESG fund’s return randomly varies between 4% and 8%, whereas the average ESG fund’s
return is fixed at 8%. The volatility of both funds are fixed at 10%. This setting ensures
that the high ESG fund does not dominate the average ESG fund on both sustainability
and performance dimensions so that participants face a non-trivial choice between
the two funds. More details about the survey can be found in the Internet Appendix.33
Observing responses on how participants would allocate investments between the
two funds under different scenarios allows us to examine the effects of income shocks on
SRI investments, controlling for return differences. We estimate the following regression on
the sample of survey responses at the participant-scenario level:

(3) HIGH ESG INVi,k = α + β1 · INCOME SHOCKi,k + β2 · HIGH ESG RETi,k + ηi + i,k

where HIGH ESG INVi,k is the fraction of investment allocated to the high ESG fund by par-
ticipant i in the k th scenario, INCOME SHOCKi,k is the income shock, HIGH ESG RETi,k
is the expected return on the high ESG fund, and ηi denotes participant fixed effects.
The results are presented in Panel B of Table 6. In the first two specifications,
we include as independent variables the level of the income shock and the high ESG fund’s
return. In the next two columns, the independent variables are broken down to dummy
variables indicating each of their possible values, omitting the 0% income shock and 4% high
ESG fund return. Across the four specifications, income shocks negatively impact allocations
33
See Section A.III in the Internet Appendix.

26
to the high ESG fund, controlling for its randomly varying returns as well as participant fixed
effects. Relative to average high ESG fund allocations of 23.8% in the absence of income
shocks, hypothetical reductions in participants’ income by 25% and 50% are associated
with 3.9 and 6.3 percentage point lower allocations to the high ESG fund, respectively.
Unsurprisingly, higher expected returns positively affect allocations to the high ESG
fund. When its return is increased from 4% to 5%, participants increase allocations to the
high ESG fund by 2.8 to 4.3 percentage points. As the high ESG fund’s return is increased
to 6%, 7%, or 8%, participants exponentially increase their allocations to the fund,
consistent with the narrowing return gap between the two funds making the high ESG
fund increasingly dominant over the average ESG fund among participants who have
non-pecuniary preferences for sustainability. In columns 5 to 8, we re-run the same
regressions on a subsample of participants who answered that they consider sustainability
in their own investment decisions (i.e., roughly half of the sample), and find similar results.
To further substantiate this result, we also ask participants in a subsequent and
separate question, how much annual return they would be willing to forgo to invest $1,000
in a mutual fund with the highest (five globe) sustainability rating rather than a fund with
an average sustainability rating, given hypothetical scenarios with 0%, 25% or 50% income
reductions. Results from regressing the return a participant is willing to give up
(RETURN WILLINGNESS) on the income shock are reported in columns 9 to 12 in Panel
B of Table 6. Absent any income shock, participants are willing to give up an average of 3
percentage points in annual returns. RETURN WILLINGNESS drops by 0.91 to 1.01
percentage points under a 25% income shock, and decreases by more than half by 1.53 to
1.64 percentage points under a 50% income shock.34
34
To account for outliers resulting from participants’ misunderstanding of the question, we drop responses
if participants answered that they are willing to give up more than 20 percentage points in annual returns.
The results are very similar if we alternatively choose thresholds of 10, 50, or 100 percentage points instead.

27
2 Surveying Changes in Future Expectations

While this out-of-sample survey evidence helps substantiate our hypothesis that
negative economic shocks were a key channel explaining lower SRI demand during the
COVID-19 crisis, an important alternative explanation is that retail investors may have
lowered their beliefs about expected returns on high ESG funds due to COVID-19. To help
shed light on this channel, we included additional questions in the survey. We first present
participants with two funds: One fund that passively tracks the MSCI USA Standard
Index (with a three-globe sustainability rating), and another fund that passively tracks the
MSCI USA SRI Index fund (with a five-globe sustainability rating). We provide them with
information on the average returns and volatility for these funds from 2010 to 2019, and
their current sustainability ratings. We then ask participants to estimate the annual returns
on these funds over the future period from 2022 to 2032. Afterwards, we subsequently ask
them if they would change their estimates if the COVID-19 crisis had not happened. Those
who answer “yes” are again prompted to enter their estimates for a counterfactual scenario
in which the COVID-19 crisis did not happen. This allows us to elicit whether participants
believe that the returns on high ESG funds will change differently from average ESG funds,
and whether beliefs about these changes are driven by the COVID-19 crisis.
The top panel of Figure 5 reports the mean difference between the estimated future
annual returns on the MSCI USA Standard index fund and the MSCI USA SRI index fund.
The past average return gap between the two funds from 2010 to 2019 was 0.7 percentage
points, meaning that the SRI index fund underperformed relative to the standard index
fund. According to participants’ responses, the average estimated return gap for the future
period from 2022 to 2032 is only 0.34 percentage points (i.e., half of the past return gap), or
0.41 percentage points assuming COVID-19 had not happened, indicating that participants
expect the high ESG fund’s performance relative to the average ESG fund to improve in the
future. This is inconsistent with the concern that lower expected returns on SRI funds fol-
lowing COVID-19 might explain the decline in retail SRI demand, as participants heightened

28
their expectations on high ESG fund returns rather than lowering them. Corroborating this
response, we also separately ask participants “compared to before the COVID-19 pandemic,
do you think commitment to sustainability issues will be a more or less important source of
financial value for corporations?”. The responses are summarized in the lower panel of Fig-
ure 5. Consistent with the future return estimates, the majority of participants (i.e, 53.63%)
respond that sustainability will be a more important source of financial value for corpora-
tions. 34.78% respond “as important as before”, and only 11.59% respond “less important”.

[Insert Figure 5 here]

Altogether, the survey results indicate that income shocks can significantly
and negatively impact SRI investment demand by individuals. This finding underscores the
real economic effects of COVID-19 as a potentially important channel for its impact on SRI
fund flows. The survey results also indicate that retail demand for sustainable investments
increases when such investments deliver higher expected returns. At the same time, retail
investors do not expect sustainable investments to perform worse after COVID-19 than
before, which is inconsistent with the concern that changes in return expectations drive the
fall in SRI demand during the crisis. With the caveat that we were only able to elicit investor
expectations of the post-COVID world after its partial revelation, these findings highlight
the possibility that the negative real economic impact of COVID-19 outweighed its positive
impact on return expectations for high ESG funds, resulting in a net decline in SRI demand.

V Conclusion

In this paper, we exploit a large economic shock imposed by the COVID-19

pandemic to study retail investor demand for sustainable investments. We find that mutual
funds with higher sustainability ratings prior to the crisis experience a sharper decline in
fund flows in response to the COVID-19 shock, losing the relative attraction of retail flows
these funds enjoyed before the pandemic-induced downturn. Based on a battery of tests of

29
retail fund flows as well as an out-of-sample survey experiment, our results are most
consistent with retail SRI demand that is highly sensitive to income shocks.
To the extent that retail SRI demand is driven by pro-social motives, our results
suggest that such non-pecuniary benefits are perceived as costly and unsustainable for retail
investors under extreme economic conditions. We leave exploration of potential changes in
the composition of retail investors during the COVID-19 crisis as an important question for
future research that requires more disaggregated data. At a minimum, our results point to
retail investors as a source of fragility for socially responsible investing in mutual funds.
Given that retail investors comprise a significant fraction of the mutual fund investor base
and the client base for institutions as well, our findings may have implications for potential
externalities of retail fund flows on the long-run prospects of ESG investing overall.

30
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 Figure 1. Weekly Average Retail Fund Flows by Sustainability Rating
These figures plot the average weekly retail net flows of high (five globes), average (three globes), and low
(one globe) sustainability funds, along with their mean standard error bands, over the sample period from
January 4 to April 25, 2020. Morningstar sustainability ratings as of December, 2019 are used to sort funds.
The red and blue vertical dotted lines denote the dates February 20 (beginning of the market crash) and
March 23 (stimulus approval date), respectively. Plots are shown for normalized net flows and raw net flows.
a. Normalized Net Flow
60 55
Normalized Net Flow
45 50
40

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

b. Raw Net Flow

.2
0
Net Flow (%)
-.4 -.2
-.6
-.8

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

36
 Figure 2. Parallel Trends
This figure plots coefficients along with their 95% confidence intervals from the following regression.
+9 X
X 5
NORM FLOWi,t = βg,k · d[g]i × d[T + k]t + γ 0 · Xi,t + µj + ηy + θg + ωt + i,t
k=−6 g=2

The dependent variable is normalized net flow (NORM FLOW), and d[T + k]t denote dummy variables
indicating whether the fund-week observation is k weeks from the week ending February 22. The dummy
for the first week of the sample is omitted. d[g]i denote dummy variables indicating whether the fund is
assigned a g globe rating by Morningstar, where g ranges from two to five. The dummy for the group of
funds with a 1 globe rating is omitted. The baseline control variables as well as fund category, vintage year,
sustainability rating, and week fixed effects are included in the regression. The plotted coefficients are the
slopes on the weekly dummies interacted with the d[g = 5] indicator variable, describing the dynamics of
high ESG fund flows relative to the omitted low ESG fund flows from six weeks prior to nine weeks after the
onset of the crisis.

0
Coefficient

-5

-10

-15

-20
Jan-11 Jan-25 Feb-8 Feb-22 Mar-7 Mar-21 Apr-4 Apr-18

37
 Figure 3. Google Search Trends
These figures plot 7-day moving averages of Google search trends of economic- and sustainability topics,
using Google Trends data from January 1, 2020 to May 1, 2020 for the United States. Higher numbers
indicate that more users search for terms related to a topic.
a. Sustainability Topics

b. Economic Topics

38
 Figure 4. Weekly Average Institutional Fund Flows by Sustainability Rating
These figures plot the average weekly institutional net flows of high (five globes), average (three globes), and
low (one globe) sustainability funds, along with their mean standard error bands, over the sample period
from January 4 to April 25, 2020. Morningstar sustainability ratings as of December 2019 are used to sort
funds. The red and blue vertical dotted lines denote the dates February 20 (beginning of the market crash)
and March 23 (stimulus approval date), respectively. Plots are shown for normalized and raw net flows.
a. Normalized Net Flow
60 55
Normalized Net Flow
45 50
40

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

b. Raw Net Flow

1
.5
Net Flow (%)
0 -.5
-1

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

39
 Figure 5. Survey Evidence: Future Expectations of SRI Performance
This figure presents responses from an online survey of 808 participants with prior investment experience who
reside in the U.S. and have passed a basic comprehension check prior to the survey. The top panel presents
a summary of participants’ responses regarding their expectations of the average annual returns of a fund
tracking the MSCI USA Standard Index and a fund tracking the MSCI USA SRI Index. Participants were
first shown information on past performance of the two indexes from 2010 to 2019 (first bar). Participants
were then asked to provide estimates of the two funds’ returns over the period from 2022 to 2032 (second
bar), and whether their estimates would be different if the COVID-19 crisis had not happened (third bar).
The lower panel shows how participants responded to a multiple-choice question asking “Compared to before
the COVID-19 pandemic, do you think commitment to sustainability issues will be a more or less important
source of financial value for corporations? ”.
a. Return Difference: MSCI USA Standard − MSCI USA SRI
.8
.6
percentage points
.4.2
0

Actual 2010-2019 Exp. 2022-2032 Exp. absent COVID

b. Expectations regarding financial value of commitment to sustainability

60 40
percentage points
20
0

More important As important as before Less important

40
 Table 1. Summary Statistics
This table presents summary statistics of key variables over the sample period from January 4 to April 25,
2020. Panel A shows the mean, standard deviation, 10th, 25th, 50th, 75th, and 90th percentiles of each
continuous variable. The fraction of funds whose prospectuses explicitly list ESG mandates, or funds with
Morningstar low carbon designations are shown as well. In Panel B, the mean of each continuous variable
and ESG prospectus/low carbon fund fractions are reported for each Morningstar sustainability rating.
Differences in means between funds with high and low sustainability ratings, as well as their t-statistics,
are reported for the full sample period, pre-COVID (January 4 to February 15, 2020), post-COVID crash
(February 22 to March 21, 2020), and post-COVID stimulus sub-periods (March 28 to April 25, 2020).
Panel A. Variable Distributions
Variables Mean St. Dev. p10 p25 p50 p75 p90
Net Flow, Weekly (%) -0.21 1.27 -1.03 -0.49 -0.19 0.05 0.57
Normalized Net Flow, Weekly 50.25 28.85 10 25 50 75 90
Total Net Assets ($ billion) 1.35 7.34 0.02 0.05 0.20 0.71 2.08
Monthly Return (%) -5.29 7.94 -16.59 -9.71 -4.01 1.62 3.27
Prior 12-Month Return (%) 0.70 1.25 -1.14 0.00 1.00 1.58 2.05
FF 5-Factor Alpha (%) -0.05 0.57 -0.65 -0.33 -0.06 0.25 0.61
Expense Ratio 1.38 0.59 0.74 1.04 1.32 1.63 2.00
Star Rating 3.11 1.05 2 2 3 4 4
Age 18.41 11.92 5.24 10.06 18.02 23.58 29.75
ESG Risk: Environmental 47.91 27.67 11 24 47 72 87
ESG Risk: Social 50.19 27.18 12 28 50 73 88
ESG Risk: Governance 52.36 27.41 14 29 53 76 90
Fraction (%) of Funds with:
ESG Prospectuses 6.71
Low Carbon Designations 26.75

41
 Table 1. Summary Statistics (continued)
Panel B. Morningstar Sustainability Rating Breakdowns
Sustainability Net Norm. Total Monthly Prior FF Expense Star Age ESG Risk: Frac. Funds with:
Rating Flow Net Net Return 12m 5-Factor Ratio Rating Env. Social Gov. ESG Low
Flow Assets Return Alpha Prosp. Carbon
High -0.17 50.91 0.78 -4.51 0.98 0.10 1.44 3.36 17.44 22.69 33.78 38.10 22.09 63.03
Above Average -0.20 51.58 0.87 -4.70 0.89 0.03 1.41 3.34 18.26 35.82 47.54 48.77 10.74 41.83
Average -0.24 49.54 1.39 -5.30 0.69 -0.08 1.31 3.12 18.85 51.18 53.56 55.97 3.53 20.42
Below Average -0.19 50.66 1.92 -5.85 0.54 -0.13 1.36 2.97 17.85 59.41 52.14 54.19 2.60 14.43
Low -0.24 47.86 1.44 -6.02 0.43 -0.12 1.56 2.57 19.56 69.91 57.69 59.27 5.47 10.58

42
Full Sample Period (Jan4 − Apr25)
High-Low 0.07 3.05 -0.66 1.50 0.54 0.22 -0.12 0.79 -2.12 -47.22 -23.91 -21.16 16.62 52.45
t-stat 2.27 4.24 -4.53 7.42 17.18 14.14 -7.93 26.80 -7.42 -69.24 -28.83 -25.69

Pre-COVID (Jan4 − Feb15)

High-Low 0.20 7.81 -0.69 0.45 0.41 0.22 -0.11 0.77 -1.85 -47.61 -23.57 -20.71 16.77 52.47
t-stat 5.81 7.09 -2.86 3.35 18.27 7.97 -4.86 17.13 -4.23 -45.62 -18.44 -16.28

Post-COVID, Crash (Feb22 − Mar21)

High-Low 0.02 -0.99 -0.61 1.25 0.50 0.25 -0.11 0.76 -2.26 -47.25 -23.94 -21.55 16.33 52.33
t-stat 0.27 -0.74 -2.48 7.01 12.21 8.29 -4.16 13.81 -4.28 -37.37 -15.56 -14.14

Post-COVID, Stimulus (Mar28 − Apr25)

High-Low -0.07 0.11 -0.64 3.74 0.84 0.21 -0.13 0.86 -2.37 -46.62 -24.38 -21.46 16.77 52.46
t-stat -0.99 0.08 -2.52 12.55 16.41 9.49 -4.73 15.32 -4.45 -36.24 -15.76 -13.98
 Table 2. The Impact of COVID-19 on ESG Fund Flows
This table presents results from fund-week level difference-in-differences regressions of normalized net flows (NORM FLOW) on HIGH ESG and
LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar sustainability rating as of December, 2019 − and their
interactions with dummy variables indicating the post-COVID period starting in the week ending February 22, 2020. Alternatively, the dependent
variable is replaced by raw net flows as a percentage of previous week’s total net assets (RAW FLOW, Column 7) or an indicator for whether net
flows are negative (NEG FLOW, Column 8). In Panel A, a single COVID indicator is used, whereas in Panel B the COVID period is broken into two
sub-periods: The market crash period from February 22 to March 21, 2020 (COVID CRASH) and stimulus period from March 28 to April 25, 2020
(COVID STIMULUS). Control variables include prior month’s return, prior 12-month’s return, interactions between past returns and COVID period
dummies, log of total net assets, expense ratio, dummies for star rating upgrades and downgrades, star rating level, as well as category-by-week,
vintage-by-week, and sustainability rating or fund fixed effects. Standard errors are adjusted for clustering at fund and category-by-week levels (***
p<0.01, ** p<0.05, * p<0.1).
Panel A. Before and After COVID-19
Dependent Variable: NORM FLOW Dependent Variable:
Main Sample: Long Sample: RAW FLOW NEG FLOW
Jan4 − Apr25 Nov2 − Apr25
1 2 3 4 5 6 7 8
HIGH ESG × COVID -5.859*** -5.615*** -4.715*** -4.031*** -4.111*** -4.992*** -0.198*** 0.076***
(1.395) (1.393) (1.341) (1.238) (1.203) (1.273) (0.057) (0.023)
LOW ESG × COVID 3.868*** 3.550*** 2.060* 0.785 0.189 4.731*** 0.085 -0.035**
(1.231) (1.268) (1.186) (1.352) (1.371) (1.244) (0.060) (0.018)
HIGH ESG 2.736* 2.360*
(1.643) (1.389)

43
LOW ESG -3.091** -4.348***
(1.385) (1.268)

RET × COVID -0.680** -0.440** -0.009 0.011***

(0.268) (0.198) (0.009) (0.004)
RET 1.057*** 1.597*** 0.769*** 1.074*** 0.040*** -0.024***
(0.155) (0.248) (0.204) (0.140) (0.008) (0.004)
RET12M × COVID -10.715*** -7.929***
(1.219) (1.339)
RET12M 14.380*** 12.696***
(1.309) (1.343)
log(TNA) 0.558** 0.558** -18.666*** -0.472* -0.476* 0.624*** 0.040*** -0.007*
(0.265) (0.266) (3.550) (0.269) (0.269) (0.239) (0.008) (0.004)
EXPENSE RATIO -1.964*** -2.014*** -15.203*** -1.876*** -1.877*** -2.074*** -0.015 0.029***
(0.723) (0.724) (5.151) (0.721) (0.724) (0.635) (0.026) (0.011)
STAR UP -0.687 -0.682 0.468 -0.778 -0.018 0.009
(0.846) (0.845) (0.680) (0.697) (0.034) (0.013)
STAR DOWN -1.382 -1.460 -1.293* -0.563 -0.047 0.007
(0.943) (0.941) (0.716) (0.782) (0.033) (0.014)
STAR RATING 3.792*** 5.126***
(0.426) (0.434)
STAR RATING × COVID -2.377***
(0.454)

Observations 37,654 37,654 37,652 34,746 34,746 57,528 37,654 37,654

Category-by-Week FE Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y
Sustainability Rating FE N Y N Y Y N Y Y
Fund FE N N Y N N N N N
Adj R2 0.0730 0.0737 0.352 0.104 0.105 0.0682 0.0551 0.0963
 Table 2. The Impact of COVID-19 on ESG Fund Flows (continued)
Panel B. Before COVID-19, During the Crash, and During the Stimulus
Dependent Variable: NORM FLOW Dependent Variable:
Main Sample: Long Sample: RAW FLOW NEG FLOW
Jan4 − Apr25 Nov2 − Apr25
1 2 3 4 5 6 7 8
HIGH ESG × COVID CRASH -6.004*** -5.797*** -5.124*** -4.201*** -4.263*** -4.916*** -0.198*** 0.070***
(1.675) (1.673) (1.572) (1.519) (1.475) (1.511) -0.066 -0.026
HIGH ESG × COVID STIMULUS -5.716*** -5.435*** -4.276*** -3.865*** -3.965*** -5.075*** -0.199*** 0.082***
(1.548) (1.546) (1.521) (1.420) (1.397) (1.491) -0.072 -0.026
LOW ESG × COVID CRASH 3.497** 3.290** 2.580* 0.374 -0.310 4.255*** 0.03 -0.031*
(1.437) (1.449) (1.386) (1.545) (1.539) (1.337) -0.079 -0.019
LOW ESG × COVID STIMULUS 4.252*** 3.822** 1.488 1.215 0.708 5.230*** 0.143* -0.039

44
(1.635) (1.681) (1.547) (1.767) (1.795) (1.724) -0.079 -0.024
HIGH ESG 2.736* 2.359*
(1.644) (1.389)
LOW ESG -3.090** -4.347***
(1.385) (1.268)

Observations 37,654 37,654 37,652 34,746 34,746 57,528 37654 37654

Category-by-Week FE Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y
Sustainability Rating FE N Y N Y Y N Y Y
Fund FE N N Y N N N N N
Controls Y Y Y Y Y Y Y Y
RET/COVID Interactions N Y Y Y Y Y Y Y
STAR/COVID Interactions N N N N Y N N N
Return Controls Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly
Star Rating Controls Changes Changes Changes Level Level Changes Changes Changes
Adj R2 0.073 0.0736 0.352 0.104 0.105 0.0681 0.0551 0.0962
 Table 3. Retail vs. Institutional Sustainability Fund Flows
This table presents results from pooling retail and institutional funds and running fund-week level regressions
of net flows on RETAIL − an indicator for whether the fund is a retail fund − and its interactions with
HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar
sustainability rating as of December, 2019 − and their interactions with a dummy variable indicating the
post-COVID period starting in the week ending February 22, 2020. The dependent variable is either nor-
malized net flow (NORM FLOW) or raw net flow (RAW FLOW). Control variables include prior month’s
return, interaction between past returns and the COVID period dummy, log of total net assets, expense
ratio, dummies for star rating upgrades and downgrades, as well as category-by-week, vintage-by-week, and
sustainability rating fixed effects. We further report results from specifications with fund-by-week fixed ef-
fects instead, dropping fund-level control variables that are shared by retail and institutional classes of the
same fund. Standard errors are adjusted for clustering at fund and category-by-week levels (*** p<0.01, **
p<0.05, * p<0.1).

Dependent Variable:
NORM FLOW RAW FLOW
1 2 3 4
HIGH ESG × COVID × RETAIL -3.648** -3.895* -0.253*** -0.209**
(1.780) (1.990) (0.093) (0.093)
LOW ESG × COVID × RETAIL 3.859** 1.823 0.214** 0.146
(1.532) (2.061) (0.095) (0.115)
HIGH ESG × RETAIL -0.962 -0.438 0.014 0.013
(1.670) (1.815) (0.065) (0.067)
LOW ESG × RETAIL -1.656 -2.499 -0.013 -0.066
(1.623) (2.097) (0.067) (0.091)
COVID × RETAIL -1.300* -1.315 -0.159*** -0.181***
(0.737) (0.811) (0.048) (0.051)
RETAIL -3.940*** -7.807*** -0.044** -0.120***
(0.599) (0.641) (0.022) (0.028)
HIGH ESG × COVID -2.306* 0.046
(1.262) (0.075)
LOW ESG × COVID -0.254 -0.109
(1.422) (0.090)

Observations 72,087 49,610 72,087 49,610

Category-by-Week FE Y N
Vintage-by-Week FE Y N
Sustainability Rating FE Y N
Fund-by-Week FE N Y
Controls Y Y
RET/COVID/RETAIL Interactions Y Y
Adj R2 0.0771 0.275
Y N
Y N
Y N
N Y
Y Y
Y Y
0.0366 0.129

45
 Table 4. Effects of COVID-19 on ESG Fund Flows Around the World
This table presents results from an extended international sample of open-end mutual funds. Panel A presents
results from fund-week level difference-in-differences regressions of normalized net flows (NORM FLOW) on
HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar
sustainability rating as of December, 2019 − and their interactions with a dummy variable indicating the
post-COVID period starting in the week ending February 22, 2020. The regressions are run on three geo-
graphical subsamples: European funds, all non-U.S. funds, and all global funds including U.S. funds. Control
variables include prior month’s return, interactions between past returns and the COVID period dummy, log
of total net assets, dummies for star rating upgrades and downgrades, as well as category-by-week, vintage-
by-week, country, and sustainability rating or fund fixed effects. In Panel B, the difference-in-differences
regressions are run on subsamples consisting of funds sold in countries with stringent vs. lax restriction
policies (subsamples within all countries, or within a subset of countries that had either low or high eco-
nomic support), or low vs. high GDP growth during the COVID-19 crisis. Countries are classified as
stringent vs. lax or low vs. high support according to the Oxford COVID-19 Government Response Tracker
(OxCGRT) restriction stringency and economic support indices. Alternatively, the subsamples are pooled
together and the regressions are augmented by further interacting country level dummies indicating restric-
tion stringency (STRINGENT) or low economic growth rates (LOW GROWTH) during the post-COVID
period. All controls, fixed effects (except fund fixed effects, reported in Table A.8), and relevant interaction
terms are included in the regressions in Panel B. Standard errors are adjusted for clustering at fund and
category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).
Panel A. International Robustness
Dependent Variable: NORM FLOW
EU All Non-US All Global
1 2 3 4 5 6
HIGH ESG × COVID -3.732*** -2.966*** -4.299*** -3.710*** -4.439*** -3.844***
(0.751) (0.760) (0.698) (0.643) (0.657) (0.577)
LOW ESG × COVID 1.586 0.559 1.869** 0.955 2.208*** 1.230**
(1.047) (0.880) (0.770) (0.679) (0.665) (0.594)

RET × COVID -1.162*** -0.721*** -0.700*** -0.306*** -0.688*** -0.338***

(0.186) (0.146) (0.131) (0.109) (0.118) (0.099)
RET 1.748*** 0.945*** 1.207*** 0.683*** 1.244*** 0.712***
(0.181) (0.141) (0.123) (0.099) (0.110) (0.092)
log(TNA) 0.710*** -17.916*** 0.694*** -22.792*** 0.848*** -21.974***
(0.168) (2.221) (0.129) (1.996) (0.114) (1.827)
STAR UP -1.305** -0.042 -1.642*** -0.011 -1.451*** 0.078
(0.569) (0.534) (0.454) (0.415) (0.406) (0.364)
STAR DOWN -0.283 -0.212 -0.287 0.349 -0.571 -0.012
(0.520) (0.467) (0.396) (0.361) (0.373) (0.320)

Observations 84,265 84,256 150,914 150,896 188,872 188,852

Category-by-Week FE Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y
Country FE Y N Y N Y N
Sustainability Rating FE Y N Y N Y N
Fund FE N Y N Y N Y
Adj R2 0.0864 0.282 0.0913 0.289 0.0844 0.301

46
 Table 4. Effects of COVID-19 on ESG Fund Flows Around the World (continued)
Panel B. Heterogeneity in Policy and Economic Responses
Dependent Variable: NORM FLOW
Stringency of Lockdowns and Business Restrictions GDP Growth
All Countries Low Stimulus Countries High Stimulus Countries
Stringent Lax Pooled Stringent Lax Pooled Stringent Lax Pooled Low High Pooled
1 2 3 4 5 6 7 8 9 10 11 12
HIGH ESG × COVID -6.063*** -1.169 -1.169 -6.832*** 0.452 0.452 -5.137*** -2.143 -2.143 -6.371*** -3.481*** -3.481***
(0.844) (1.345) (1.341) (1.227) (1.923) (1.899) (1.136) (1.923) (1.920) (1.119) (1.051) (1.052)
LOW ESG × COVID 4.005*** -0.139 -0.139 3.754*** -2.306 -2.306 5.194*** 0.334 0.334 3.681*** 2.202** 2.202**
(0.792) (1.330) (1.326) (1.119) (1.885) (1.862) (1.395) (1.690) (1.687) (1.100) (0.993) (0.994)
HIGH ESG × COVID × STRINGENT -4.894*** -7.284*** -2.994
(1.591) (2.163) (2.237)

47
LOW ESG × COVID × STRINGENT 4.143*** 6.060*** 4.860**
(1.530) (2.109) (2.170)
HIGH ESG × COVID × LOW GROWTH -2.890*
(1.543)
LOW ESG × COVID × LOW GROWTH 1.479
(1.446)
HIGH ESG × COVID: 0.00 0.00 0.09 0.03
Stringent < Lax (Low < High)?

Observations 90,447 34,578 125,025 54,179 13,099 67,278 36,094 21,402 57,496 48,772 65,874 114,646
Category-by-Week FE Y Y Y Y Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y Y Y Y Y
Country FE Y Y Y Y Y Y Y Y Y Y Y Y
Sustainability Rating FE Y Y Y Y Y Y Y Y Y Y Y Y
Controls Y Y Y Y Y Y Y Y Y Y Y Y
Interactions & Other Terms Y Y Y Y Y Y Y Y Y Y Y Y
Adj R2 0.0762 0.0302 0.0630 0.111 0.0699 0.104 0.111 0.0837 0.101 0.0885 0.0299 0.0677
 Table 5. Attention Channels
In this table, Panel A presents results from fund-week level triple-differences regressions of normalized net
flows (NORM FLOW) on HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a
high or low Morningstar sustainability rating as of December, 2019 − and their interactions with a dummy
variable indicating the post-COVID period starting in the week ending February 22, 2020, further inter-
acted with fund-level flow-performance sensitivities (in magnitudes) estimated over the year prior to the
pandemic, either normalized by subtracting the cross-sectional mean and dividing by the standard deviation
(SENSITIVITY), or alternatively used to create an indicator variable classifying whether a fund is in the
top sensitivity quintile (HIGH SENSITIVITY). Panel B reports results from extending the sample period
through March, 2021, and assigning indicator variables for key additional subperiods: REOPENING period
(i.e., weeks ending May 2, 2020 to November 7, 2020); VACCINE development period (i.e., weeks ending
November 14, 2020 to January 16, 2021); MEME STOCK period (i.e., weeks ending January 23, 2021 to
March 20, 2021). These time dummy variables are interacted with HIGH ESG and LOW ESG, and added to
the baseline difference-in-differences regressions. The post-COVID crash and stimulus periods are included
as in the original specifications, and the pre-COVID period is the omitted time category. Panel C presents
results from regressions of normalized net flow on the interaction terms between time-series aggregate retail
trading activity and the HIGH ESG or LOW ESG fund dummy variables. Daily retail trading activity (i.e.,
retail share volume (RETAIL SHARE VOL), number of retail trades (RETAIL TRADES), and retail dollar
volume (RETAIL DOLLAR VOL)) from Boehmer et al. (2021) is collected from the Trade and Quote (TAQ)
database, aggregated to weekly frequency, and normalized across the time-series by subtracting the mean
and dividing by the standard deviation. The regressions are run either on the baseline sample period or the
extended sample period that includes the meme stock period. In all panels, control variables include prior
month’s return, interaction between past returns and the COVID period dummy (interaction terms involving
flow-performance sensitivity are also included in Panel A), log of total net assets, dummies for star rating
upgrades and downgrades, as well as category-by-week, vintage-by-week, and sustainability rating or fund
fixed effects. Standard errors are adjusted for clustering at fund and category-by-week levels (*** p<0.01,
** p<0.05, * p<0.1).
Panel A. Flow-Return Sensitivity
Dependent Variable: NORM FLOW
1 2 3 4
HIGH ESG × COVID -4.807*** -4.385*** -5.839*** -5.074***
(1.745) (1.534) (1.441) (1.325)
HIGH ESG × SENSITIVITY × COVID -0.226 -0.142
(0.207) (0.204)
HIGH ESG × HIGH SENSITIVITY × COVID -1.625 -0.795
(4.414) (4.585)

LOW ESG × COVID 4.681*** 2.832* 5.133*** 3.336**

(1.628) (1.555) (1.358) (1.333)
LOW ESG × SENSITIVITY × COVID -0.119 -0.070
(0.198) (0.193)
LOW ESG × HIGH SENSITIVITY × COVID -4.444 -3.498
(2.776) (2.766)

Observations 37,109 37,108 37,113 37,112

Category-by-Week FE Y Y Y Y
Vintage-by-Week FE Y Y Y Y
Sustainability Rating FE Y N Y N
Fund FE N Y N Y
Controls / Interactions Y Y Y Y
Adj R2 0.0747 0.350 0.0750 0.350

48
 Table 5. Attention Channels (continued)
Panel B. COVID Relief and Attention to Meme Stocks
Dependent Variable: NORM FLOW
1 2
HIGH ESG × COVID CRASH -5.477*** -4.612***
(1.486) (1.261)
LOW ESG × COVID CRASH 1.431 0.319
(1.310) (1.272)

HIGH ESG × COVID STIMULUS -4.736*** -3.643***

(1.557) (1.241)
LOW ESG × COVID STIMULUS 1.587 -0.698
(1.334) (1.271)

HIGH ESG × REOPENING -0.324 0.277

(1.102) (0.841)
LOW ESG × REOPENING 0.137 -0.574
(1.100) (0.897)

HIGH ESG × VACCINE 2.678** 2.745***

(1.114) (1.033)
LOW ESG × VACCINE 0.434 0.506
(1.080) (1.033)

HIGH ESG × MEME STOCK 4.068*** 3.176**

(1.404) (1.336)
LOW ESG × MEME STOCK 2.446** 1.814*
(1.102) (1.095)

Observations 182,830 182,828

Category-by-Week FE Y Y
Vintage-by-Week FE Y Y
Sustainability Rating FE Y N
Fund FE N Y
Controls Y Y
Adj R2 0.0926 0.304

49
 Table 5. Attention Channels (continued)
Panel C. Retail Trading and ESG Fund Flows
Dependent Variable: NORM FLOW
Base Period Extended Period Base Period Extended Period Base Period Extended Period
1 2 3 4 5 6 7 8 9
HIGH ESG × RETAIL SHARE VOL -0.708 1.330*** 1.315***
(0.912) (0.370) (0.352)
LOW ESG × RETAIL SHARE VOL 0.588 0.349 0.521
(0.827) (0.355) (0.348)
HIGH ESG × RETAIL TRADES -0.248 1.351*** 1.375***
(0.919) (0.386) (0.373)

50
LOW ESG × RETAIL TRADES 0.797 0.474 0.655*
(0.849) (0.367) (0.361)
HIGH ESG × RETAIL DOLLAR VOL 0.125 0.911*** 0.915***
(0.747) (0.309) (0.293)
LOW ESG × RETAIL DOLLAR VOL -0.061 0.177 0.104
(0.686) (0.331) (0.320)

Observations 50,530 182,830 182,828 50,530 182,830 182,828 50,530 182,830 182,828
Category-by-Week FE Y Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y Y
Sustainability Rating FE Y Y N Y Y N Y Y N
Fund FE N N Y N N Y N N Y
Controls Y Y Y Y Y Y Y Y Y
Adj R2 0.0799 0.0918 0.303 0.0799 0.0918 0.303 0.0799 0.0917 0.303
 Table 6. External Validity: Experimental Survey Evidence
This table presents summary statistics (Panel A) and regression results (Panel B) of responses from an
online survey experiment of 808 participants with prior investment experience who reside in the U.S. and
have passed a basic comprehension check prior to the survey. Panel A reports demographics (i.e., gender,
age, U.S. nationality, income, and employment status), investment background (i.e., investment experience,
related occupation, consideration for sustainability issues), impact by COVID-19 (i.e., worsening of economic
status, losing job), changes in beliefs due to COVID-19 (i.e., believes sustainability will be less financially
or socially important), and various viewpoints toward SRI by participants. Panel B reports results from
analyzing responses from an experiment wherein participants decide how to allocate their hypothetical
investments between a high ESG fund and an average ESG fund under different scenarios with varying
income shocks (i.e., 0% (participant’s current income), 25%, or 50% income drop) and expected returns on
the high ESG fund (i.e., varies between 4% and 8%). Columns 1 to 8 present results from regressing the
participant’s high ESG fund allocation (HIGH ESG INV) on the income shock (INCOME SHOCK) and
high ESG fund’s return (HIGH ESG RET). Columns 3 and 4 break down the independent variables into
dummies indicating each level of the income shock and high ESG fund’s return, omitting the 0% income
shock and 4% return categories. Columns 5 to 8 present results from the subsample of participants who
answered that they consider sustainability in their own investment decisions. Columns 9 to 12 present results
from regressing the annual return a participant is willing to give up to invest in a high ESG fund rather
than an average ESG fund (RETURN WILLINGNESS), collected from an additional questionnaire, on the
income shock. Even numbered columns additionally control for participant fixed effects. Standard errors are
adjusted for clustering at the participant level (*** p<0.01, ** p<0.05, * p<0.1).
Panel A. Summary Statistics of Survey Participants
Mean St. Dev. Count
Demographics
Male 0.63 0.48 808
Age 38.79 12.89 800
Native US 0.95 0.22 808
Income 77,416.36 55,343.09 807
Unemployed 0.06 0.23 644

Investment Background
Investment Experience 1.00 0.00 808
Investment Professional 0.03 0.17 808
Considers Sustainability 0.47 0.50 808

COVID Impact
COVID: Economically Worsened 0.27 0.45 808
COVID: Lost Job 0.19 0.39 808

Post-COVID Belief
COVID: ESG Financially Less Important 0.11 0.32 808
COVID: ESG Socially Less Important 0.10 0.30 808

Views SRI Primarily As. . .

Good Cause 0.66 0.48 808
Financially Superior 0.21 0.41 808
Constraint on Investment 0.18 0.39 808
Unimportant 0.16 0.36 808
Unaware 0.06 0.24 808

51
 Table 6. External Validity: Experimental Survey Evidence (continued)
Panel B. Determinants of Willingness to Invest in SRI Funds
Dependent Variable:
HIGH ESG INV (%) RETURN WILLINGNESS (%)
All Participants Considers Sustainability when Investing
1 2 3 4 5 6 7 8 9 10 11 12
INCOME SHOCK -0.122*** -0.122*** -0.126*** -0.126*** -0.031*** -0.033***
(0.016) (0.016) (0.023) (0.023) (0.003) (0.002)
HIGH ESG RET 14.078*** 14.090*** 13.885*** 13.839***
(0.305) (0.311) (0.429) (0.440)
25% INCOME SHOCK -3.946*** -3.909*** -4.172*** -4.147*** -0.913*** -1.005***
(0.652) (0.650) (0.932) (0.929) (0.183) (0.084)

52
50% INCOME SHOCK -6.300*** -6.292*** -6.588*** -6.570*** -1.526*** -1.644***
(0.753) (0.751) (1.115) (1.113) (0.174) (0.095)
5% HIGH ESG RET 2.791** 4.254*** 3.697** 4.720***
(1.206) (1.027) (1.850) (1.579)
6% HIGH ESG RET 8.284*** 9.901*** 11.890*** 12.531***
(1.294) (1.062) (1.981) (1.669)
7% HIGH ESG RET 19.695*** 21.648*** 24.203*** 25.687***
(1.235) (1.099) (1.785) (1.627)
8% HIGH ESG RET 58.573*** 58.684*** 56.560*** 56.224***
(1.330) (1.331) (1.852) (1.903)

CONSTANT -43.018*** -43.091*** 23.769*** 22.738*** -32.925*** -32.637*** 31.186*** 30.637*** 3.032*** 3.102*** 2.982*** 3.041***
(2.031) (1.955) (0.999) (0.794) (2.950) (2.715) (1.478) (1.153) (0.136) (0.073) (0.122) (0.063)

Observations 4,848 4,848 4,848 4,848 2,280 2,280 2,280 2,280 2,367 2,367 2,367 2,367
Participant FE N Y N Y N Y N Y N Y N Y
Adj R2 0.332 0.592 0.420 0.667 0.356 0.594 0.412 0.641 0.0314 0.769 0.0314 0.768
Appendix: Variable Descriptions

Variable name Definition

RAW FLOW Weekly percentage of dollar net flows as fraction of fund’s total net assets in the previous week
NORM FLOW Percentage ranking of net flows of fund within its fund size sorted decile in a given week
NEG FLOW Indicator for whether the fund’s weekly net flow is negative

HIGH ESG Indicator for whether fund has 5 globe Morningstar sustainability rating as of December 2019
ABOVE AVG ESG Indicator for whether fund has 4 globe Morningstar sustainability rating as of December 2019
BELOW AVG ESG Indicator for whether fund has 2 globe Morningstar sustainability rating as of December 2019
LOW ESG Indicator for whether fund has 1 globe Morningstar sustainability rating as of December 2019
d[g] Dummy variables indicating whether the fund is assigned a g globe rating by Morningstar,
where g ranges from two to five

COVID Indicator for weeks ending February 22 or after

COVID CRASH Indicator for weeks between February 22 and March 21
COVID STIMULUS Indicator for weeks between March 23 and April 25
d[T + k] Dummy variables indicating whether the observation is k weeks from the week ending February
22, 2020

RETAIL Indicator for whether fund is sold to retail investors, based on retail and institutional share
classes

RET Previous month’s return of fund

RET12M Previous 12 months’ return of fund
TNA Total net assets as of previous week’s end
EXPENSE RATIO Expense ratio in previous year
STAR RATING Morningstar rating of fund’s risk-adjusted performance within same Morningstar category
STAR UP Indicator for whether fund’s Morningstar rating was upgraded
STAR DOWN Indicator for whether fund’s Morningstar rating was downgraded

AGE Fund age calculated based on years since inception date

FF5 ALPHA Fund’s Fama and French (2015) five-factor adjusted alpha using 12-month rolling windows
ESG RISK ENVIRONMENTAL Sustainalytics ESG (environmental) Risk percentage ranking of fund within its global category
ESG RISK SOCIAL Sustainalytics ESG (social) Risk percentage ranking of fund within its global category
ESG RISK GOVERNANCE Sustainalytics ESG (governance) Risk percentage ranking of fund within its global category
ESG PROSPECTUS Indicator for whether fund has explicit ESG mandate in its prospectus as indicated by Morn-
ingstar (e.g., environmental concerns, carbon footprint reduction, renewable energy, gender
issues, community development, ESG shareholder engagement), or in its fund name (e.g.,
include strings: SUSTAIN, GREEN, ESG, CSR, RESPONSIB, CLIMATE, WARMING, EN-
VIRONMENT, SOCIAL, GOVERNANCE)
LOW CARBON Morningstar flag for low carbon funds based on portfolio level fossil fuel involvement and carbon
risk scores from Sustainalytics

STRINGENT Indicator for whether a country is above the median country in its average post-COVID re-
striction stringency (e.g., lockdowns, school closures, travel and movement restrictions) index
according to the Oxford COVID-19 Government Response Tracker (OxCGRT)
LOW GROWTH Indicator for whether a country is below the median country in its average post-COVID GDP
growth

SENSITIVITY Magnitude of fund’s flow-performance sensitivity estimated over the year prior to the pandemic,
normalized by subtracting the cross-sectional mean and dividing by the standard deviation
HIGH SENSITIVITY Magnitude of fund’s flow-performance sensitivity estimated over the year prior to the pandemic,
used to create an indicator variable classifying whether a fund is in the top sensitivity quintile
(continued)

1
 Variable Descriptions (continued)
Variable name Definition
REOPENING Indicator variable for “Reopening” period (i.e., weeks ending May 2, 2020 to November 7,
2020)
VACCINE Indicator variable for “Vaccine Development” period (i.e., weeks ending November 14, 2020 to
January 16, 2021)
MEME STOCK Indicator variable for “Meme Stock” period (i.e., weeks ending January 23, 2021 to March 20,
2021)

RETAIL SHARE VOL
RETAIL TRADES
RETAIL DOLLAR VOL
Daily retail trading share volume from Boehmer et al. (2021), collected from the Trade and
Quote (TAQ) database, aggregated to weekly frequency, and normalized across the time-series
by subtracting the mean and dividing by the standard deviation
Daily number of retail trades from Boehmer et al. (2021), collected from the Trade and Quote
(TAQ) database, aggregated to weekly frequency, and normalized across the time-series by
subtracting the mean and dividing by the standard deviation
Daily retail trading dollar volume from Boehmer et al. (2021), collected from the Trade and
Quote (TAQ) database, aggregated to weekly frequency, and normalized across the time-series
by subtracting the mean and dividing by the standard deviation

HIGH ESG INV (%) Fraction of hypothetical investment (%) allocated by survey participant to high ESG fund
RETURN WILLINGNESS Annual return (%) survey participant is willing to give up to invest $1,000 in a mutual fund
with the highest sustainability rating (5 globes) rather than average sustainability rating (3
globes)
INCOME SHOCK Level of the hypothetical income shock (i.e., 0%, −25%, or −50%)
25% INCOME SHOCK Dummy variable indicating 25% hypothetical income shock
50% INCOME SHOCK Dummy variable indicating 50% hypothetical income shock
HIGH ESG RET Level of the expected return on the hypothetical high ESG fund (i.e., 4%, 5%, 6%, 7%, or 8%)
5% HIGH ESG RET Dummy variable indicating 5% expected return on the hypothetical high ESG fund
6% HIGH ESG RET Dummy variable indicating 6% expected return on the hypothetical high ESG fund
7% HIGH ESG RET Dummy variable indicating 7% expected return on the hypothetical high ESG fund
8% HIGH ESG RET Dummy variable indicating 8% expected return on the hypothetical high ESG fund

Variables used in Internet Appendix

ABS FLOW Absolute value of net flows
WEEKLY RETURN Weekly return of fund
COVID RET Fund’s cumulative return during weeks ending February 22 or after
BETA Fund’s monthly rolling window market beta
PAST FLOW Fund’s past 12-month flows on a rolling-window basis, normalized by subtracting the cross-
sectional mean and dividing by the standard deviation
HIGH PAST FLOW Fund’s past 12-month flows on a rolling-window basis, used to create an indicator variable
classifying whether a fund is in the top past flow quintile
INDEX FUND Indicator for whether fund is indexed
HEALTHCARE SECTOR Indicator for whether fund is specialized in healthcare sector as indicated by Morningstar
TECH SECTOR Indicator for whether fund is specialized in technology sector as indicated by Morningstar

2
Internet Appendix
A.I Additional Figures and Tables

Figure A.1. Retail and Institutional Fund Flows and Net Assets
These figures plot weekly aggregate total net assets and dollar net flows of retail and institutional funds over
the sample period from January 4 to April 25, 2020.
a. Total Net Assets
4
Total Net Assets ($ Trillion)
1 2 0 3

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

Retail Institutional

b. Dollar Net Flow

5
Dollar Net Flow ($ Billion)
-5 -10 0

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

Retail Institutional

1
 Figure A.2. Weekly Average Pooled Fund Flows by Sustainability Rating
For the pooled sample of funds consisting of both retail and institutional share classes, these figures plot
the average weekly net flows of high (five globes), average (three globes), and low (one globe) sustainability
funds, along with their mean standard error bands, over the sample period from January 4 to April 25,
2020. Morningstar sustainability ratings as of December, 2019 are used to sort funds. The red and blue
vertical dotted lines denote the dates February 20, 2020 (beginning of the market crash) and March 23, 2020
(stimulus approval date), respectively. Plots are shown for normalized net flows and raw net flows.
a. Normalized Net Flow
60 55
Normalized Net Flow
45 50
40

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

b. Raw Net Flow

.4
.2
Net Flow (%)
-.2 0-.4
-.6

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

High Sustainability Average Sustainability

Low Sustainability

2
 Figure A.3. Parallel Trends (Retail vs. Institutional)
This figure plots coefficients along with their 95% confidence intervals from an augmented triple-difference
version of Equation 2 further interacted with RETAILi , run on the pooled sample of retail and institutional
share classes. The plotted coefficients are the slopes on the interaction terms between the weekly dummy
variables, d[T + k]t , indicating whether the fund-week observation is k weeks from the week ending February
22, 2020, and the d[g = 5] and RETAIL indicator variables, describing the differential dynamics of the high
vs. low ESG fund flow gap for retail funds relative to institutional funds, from six weeks prior to nine weeks
after the onset of the crisis. The dummy for the first week of the sample and the dummy for the group of
funds with a 1 globe rating are omitted. The baseline control variables as well as fund category, vintage
year, and sustainability rating fixed effects are included in the regression.

10

0
Coefficient

-10

-20
Jan-11 Jan-25 Feb-8 Feb-22 Mar-7 Mar-21 Apr-4 Apr-18

3
 Figure A.4. Increased Competition from New ESG Fund Entrants?
These figures plot the weekly rate of fund entry and exit computed as the number of funds that newly enter
the sample or cease to exist as a ratio of the number of existing funds (above), and the weekly number of
high and low ESG funds according to their Morningstar sustainability ratings (below).
a. Entry and Exit Rates
2
1.5
Percent
1
.5
0

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

Entry Rate Exit Rate

b. Number of High and Low ESG Funds

200
190
180
170

Jan-4 Jan-18 Feb-1 Feb-15 Feb-29 Mar-14 Mar-28 Apr-11 Apr-25

N High ESG Funds N Low ESG Funds

4
 Table A.1. Parallel Trends
This table presents results from the following regression.
+9 X
X 5
NORM FLOWi,t = βg,k · d[g]i × d[T + k]t + γ 0 · Xi,t + µj + ηy + θg + ωt + i,t
k=−6 g=2

The dependent variable is normalized net flow (NORM FLOW), and d[T + k]t denote dummy variables
indicating whether the observation is k weeks from the week ending February 22, 2020. The dummy for the
first week of the sample is omitted. d[g]i denote dummy variables indicating whether the fund is assigned
a g globe rating by Morningstar, where g ranges from two to five. The dummy for the group of funds
with a 1 globe rating is omitted. The baseline control variables as well as fund category, vintage year, and
sustainability rating fixed effects are included in the regression. The reported coefficients in Column (1) are
the slopes on the weekly dummies interacted with the d[g = 5] indicator variable, describing the dynamics
of high ESG fund flows relative to the omitted low ESG fund flows from six weeks prior to nine weeks after
the onset of the crisis. The coefficients in Column (2) are from an augmented triple-difference version of
the regression further interacted with RETAILi , run on the pooled sample of retail and institutional funds.
Standard errors are adjusted for clustering at fund and category levels (*** p<0.01, ** p<0.05, * p<0.1).
Dependent Variable: NORM FLOW
Retail Fund Sample Pooled Sample
( d[g = 5] × d[T + k] ) ( d[g = 5] × RETAIL × d[T + k] )
1 2
d[T − 6] -0.641 2.064
(2.154) (3.140)
d[T − 5] 0.657 2.723
(1.460) (2.441)
d[T − 4] -3.513 -1.033
(2.863) (3.383)
d[T − 3] 2.641 3.816
(1.631) (2.479)
d[T − 2] -3.085 -3.156
(1.892) (3.169)
d[T − 1] -1.945 0.793
(1.310) (2.615)
d[T ] -10.584*** -9.425***
(1.493) (1.831)
d[T + 1] -9.677*** -8.439***
(1.034) (2.411)
d[T + 2] -11.197*** -10.562**
(2.211) (3.742)
d[T + 3] -5.433*** -3.352
(1.750) (3.603)
d[T + 4] -13.602*** -9.644***
(1.787) (2.222)
d[T + 5] -10.546*** -9.079**
(1.950) (3.464)
d[T + 6] -9.732*** -4.112
(2.238) (3.342)
d[T + 7] -11.480*** -6.164**
(1.613) (2.606)
d[T + 8] -11.862*** -7.591*
(2.758) (3.662)
d[T + 9] -9.774*** -0.086
(1.994) (3.165)

Observations 37,654 72,087

Category FE Y Y
Vintage FE Y Y
Sustainability Rating FE Y Y
Week FE Y Y
Controls / Interactions Y Y
Adj R2 0.0653 0.0538

5
 Table A.2. Fund ESG Ratings and Fund Flows
This table presents results from fund-week level OLS regressions of net flows on HIGH ESG, ABOVE AVG ESG, BELOW AVG ESG, and LOW ESG
− dummy variables indicating whether a fund had a high, above average, below average, or low Morningstar sustainability rating as of December, 2019.
Results are shown for normalized net flows (NORM FLOW) and raw net flows (RAW FLOW) as the dependent variable, and for pre-COVID and
post-COVID sub-periods. Control variables include prior month’s return, log of total net assets, expense ratio, dummies for star rating upgrades and
downgrades, as well as category-by-week and vintage-by-week fixed effects. Standard errors are adjusted for clustering at fund and category-by-week
levels (*** p<0.01, ** p<0.05, * p<0.1).
Dependent Variable: NORM FLOW Dependent Variable: RAW FLOW
Pre-COVID Post-COVID Pre-COVID Post-COVID
Long Sample Main Sample Crash Stimulus Long Sample Main Sample Crash Stimulus
Nov2 − Feb15 Jan4 − Feb15 Feb22 − Mar21 Mar28 − Apr25 Nov2 − Feb15 Jan4 − Feb15 Feb22 − Mar21 Mar28 − Apr25
1 2 3 4 5 6 7 8
HIGH ESG 3.082** 3.876** -2.526 -3.047* 0.107** 0.163*** -0.041 -0.049
(1.452) (1.737) (1.684) (1.686) (0.041) (0.047) (0.074) (0.077)

6
ABOVE AVG ESG 2.225** 2.991** -0.657 -0.387 0.035 0.079** -0.048 -0.032
(0.985) (1.166) (1.139) (1.133) (0.029) (0.032) (0.056) (0.047)
BELOW AVG ESG 0.348 1.180 1.065 1.162 -0.010 0.039 0.054 0.096**
(0.934) (1.061) (1.093) (1.106) (0.026) (0.029) (0.051) (0.048)
LOW ESG -3.472** -1.608 -0.083 1.605 -0.089** 0.005 0.021 0.172*
(1.348) (1.468) (1.647) (1.870) (0.040) (0.041) (0.092) (0.089)

RET 1.386*** 1.528*** 0.002 1.301*** 0.038*** 0.038*** 0.011 0.040***

(0.191) (0.242) (0.299) (0.197) (0.006) (0.008) (0.013) (0.008)
log(TNA) 0.808*** 0.870*** 0.487 0.202 0.019*** 0.025*** 0.062*** 0.040***
(0.256) (0.316) (0.314) (0.350) (0.007) (0.008) (0.013) (0.013)
EXPENSE RATIO -2.199*** -2.239*** -1.467 -1.825* -0.001 -0.004 -0.006 -0.039
(0.669) (0.809) (0.942) (0.979) (0.024) (0.026) (0.046) (0.037)
STAR UP -0.282 1.045 0.703 -2.741** 0.055 0.069** -0.019 -0.078
(0.898) (1.343) (1.460) (1.312) (0.035) (0.033) (0.071) (0.056)
STAR DOWN 0.326 -0.957 -2.827* -0.618 0.037 -0.004 -0.083 -0.047
(0.970) (1.297) (1.469) (1.589) (0.030) (0.035) (0.067) (0.052)

Observations 35,870 15,850 11,011 10,793 35,870 15,850 11,011 10,793

Category-by-Week FE Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y
Adj R2 0.0709 0.0885 0.0694 0.0631 0.0339 0.0574 0.0431 0.0384
 Table A.3. Fund Flows Around COVID-19
This table presents results from fund-week level OLS regressions of net flows on dummy variables indicating the post-COVID period starting in the
week ending February 22, 2020. Regressions are run for the full sample, as well as separately for subsamples of funds in each Morningstar sustainability
rating group. Results are shown for normalized net flows (NORM FLOW) and raw net flows (RAW FLOW) as the dependent variable. In Panel A,
a single COVID indicator is used, whereas in Panel B, the COVID period is broken into two sub-periods: The market crash period from February
22 to March 21, 2020 (COVID CRASH) and stimulus period from March 28 to April 25, 2020 (COVID STIMULUS). Control variables include prior
month’s return, log of total net assets, expense ratio, dummies for star rating upgrades and downgrades, as well as category and vintage fixed effects.
Standard errors are adjusted for clustering at fund and category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).
Panel A. Before and After COVID-19
Dependent Variable: RAW FLOW Dependent Variable: NORM FLOW
All Funds High Above Average Average Below Average Low High Above Average Average Below Average Low
1 2 3 4 5 6 7 8 9 10 11

7
COVID -0.220*** -0.362*** -0.316*** -0.185*** -0.179*** -0.158** -3.014* -1.310 2.337*** 2.490** 5.396***
(0.032) (0.072) (0.054) (0.041) (0.054) (0.073) (1.556) (1.008) (0.901) (1.055) (1.475)

RET -0.010*** -0.011** -0.012*** -0.010*** -0.012*** -0.007 0.136 0.064 0.100 0.116 0.206*
(0.002) (0.005) (0.003) (0.003) (0.003) (0.004) (0.111) (0.072) (0.064) (0.076) (0.105)
log(TNA) 0.042*** 0.078** 0.046** 0.034*** 0.060*** -0.044 1.226 1.177* 0.463 1.323*** -1.220
(0.008) (0.032) (0.020) (0.012) (0.015) (0.042) (0.936) (0.626) (0.421) (0.468) (1.050)
EXPENSE RATIO -0.006 0.407*** -0.033 -0.033 -0.075* -0.243*** 8.760*** -0.877 -2.508* -3.791*** -5.591**
(0.026) (0.110) (0.071) (0.040) (0.043) (0.088) (2.994) (1.814) (1.278) (1.292) (2.387)
STAR UP 0.067** -0.000 0.084 0.079 -0.094 0.339*** -1.729 1.117 -0.002 -0.140 3.921
(0.033) (0.086) (0.065) (0.051) (0.080) (0.103) (2.514) (1.586) (1.363) (1.882) (2.421)
STAR DOWN -0.112*** -0.241*** -0.035 -0.111* -0.161*** 0.075 -5.872** -2.247 -2.712* -4.006** -0.305
(0.032) (0.083) (0.080) (0.065) (0.054) (0.093) (2.709) (2.214) (1.599) (1.588) (2.447)

Observations 38,033 3,337 8,463 14,163 8,962 3,014 3,337 8,463 14,163 8,962 3,014
Category FE Y Y Y Y Y Y Y Y Y Y Y
Vintage FE Y Y Y Y Y Y Y Y Y Y Y
Controls Y Y Y Y Y Y Y Y Y Y Y
Adj R2 0.0321 0.0874 0.0504 0.0249 0.0514 0.0954 0.142 0.0785 0.0733 0.0902 0.156
 Table A.3. Fund Flows Around COVID-19 (continued)
Panel B. Before COVID-19, During the Crash, and During the Stimulus
Dependent Variable: RAW FLOW Dependent Variable: NORM FLOW
All Funds High Above Average Average Below Average Low High Above Average Average Below Average Low
1 2 3 4 5 6 7 8 9 10 11
COVID CRASH -0.214*** -0.344*** -0.303*** -0.170*** -0.171*** -0.166** -2.861* -1.233 2.410*** 2.531** 5.358***
(0.029) (0.072) (0.053) (0.038) (0.051) (0.072) (1.575) (1.024) (0.909) (1.058) (1.488)
COVID STIMULUS 0.213*** 0.084 0.113* 0.252*** 0.236*** 0.358*** 0.753 1.134 4.371*** 4.431*** 7.673***
(0.041) (0.130) (0.066) (0.064) (0.064) (0.102) (2.713) (1.569) (1.454) (1.693) (2.364)

RET 0.009*** 0.012 0.009** 0.010*** 0.005 0.014*** 0.327** 0.184* 0.193** 0.199** 0.297**

8
(0.002) (0.007) (0.004) (0.004) (0.004) (0.005) (0.162) (0.097) (0.087) (0.100) (0.128)
log(TNA) 0.040*** 0.077** 0.043** 0.033*** 0.058*** -0.046 1.220 1.163* 0.460 1.316*** -1.229
(0.008) (0.032) (0.020) (0.011) (0.015) (0.042) (0.935) (0.625) (0.421) (0.467) (1.047)
EXPENSE RATIO -0.009 0.404*** -0.038 -0.031 -0.077* -0.249*** 8.737*** -0.905 -2.497* -3.800*** -5.615**
(0.026) (0.109) (0.070) (0.039) (0.043) (0.088) (2.987) (1.813) (1.272) (1.291) (2.383)
STAR UP 0.024 -0.059 0.045 0.036 -0.123 0.291*** -2.223 0.899 -0.202 -0.272 3.711
(0.033) (0.089) (0.065) (0.051) (0.079) (0.096) (2.575) (1.602) (1.353) (1.890) (2.398)
STAR DOWN -0.086*** -0.194** -0.010 -0.088 -0.142*** 0.096 -5.478** -2.103 -2.605 -3.920** -0.214
(0.031) (0.083) (0.080) (0.065) (0.052) (0.092) (2.706) (2.206) (1.600) (1.589) (2.424)

Observations 38,033 3,337 8,463 14,163 8,962 3,014 3,337 8,463 14,163 8,962 3,014
Category FE Y Y Y Y Y Y Y Y Y Y Y
Vintage FE Y Y Y Y Y Y Y Y Y Y Y
Controls Y Y Y Y Y Y Y Y Y Y Y
Adj R2 0.0413 0.0965 0.0589 0.0338 0.0595 0.108 0.143 0.0789 0.0736 0.0904 0.157
 Table A.4. Asymmetric Effects of COVID-19 on Fund Inflows and Outflows
This table presents results from fund-week level regressions of the absolute value of net flows (ABS FLOW)
on NEG FLOW − an indicator for whether the fund’s weekly net flow is negative − and its interactions with
HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar
sustainability rating as of December, 2019 − and their interactions with a dummy variable indicating the
post-COVID period starting in the week ending February 22, 2020. Control variables include prior month’s
return, interactions between past returns and the COVID period and NEG FLOW dummies, log of total
net assets, expense ratio, dummies for star rating upgrades and downgrades, as well as category-by-week,
vintage-by-week, and sustainability rating fixed effects. Standard errors are adjusted for clustering at fund
and category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).

Dependent Variable: ABS FLOW

1 2
HIGH ESG × COVID × NEG FLOW 0.227** 0.216**
(0.095) (0.095)
HIGH ESG × COVID -0.151* -0.135
(0.086) (0.086)
LOW ESG × COVID × NEG FLOW -0.172 -0.174
(0.115) (0.116)
LOW ESG × COVID 0.182 0.176
(0.115) (0.116)
HIGH ESG × NEG FLOW -0.207*** -0.200***
(0.074) (0.073)
LOW ESG × NEG FLOW 0.005 0.010
(0.086) (0.083)
COVID × NEG FLOW -0.068* -0.077
(0.037) (0.058)
NEG FLOW -0.061*** -0.034
(0.024) (0.025)

Observations 37,654 37,654

Category-by-Week FE Y Y
Vintage-by-Week FE Y Y
Sustainability Rating FE Y Y
Controls Y Y
RET/COVID/NEG FLOW Interactions N Y
Adj R2 0.0948 0.0952

9
 Table A.5. Institutional Fund Flows Around COVID-19
Panel A of this table presents results from fund-week level difference-in-differences regressions of institu-
tional normalized or raw net flows (NORM FLOW or RAW FLOW) on HIGH ESG and LOW ESG −
dummy variables indicating the fund’s Morningstar sustainability rating as of December, 2019 − and their
interactions with a COVID CRASH dummy indicating the market crash period from February 22 to March
21, 2020 and a COVID STIMULUS dummy indicating the stimulus period from March 28 to April 25,
2020. Panel B reports results from OLS regressions of institutional normalized net flows (NORM FLOW)
on HIGH ESG, ABOVE AVG ESG, BELOW AVG ESG, and LOW ESG dummy variables, shown for pre-
COVID and post-COVID sub-periods. Panel C presents results from regressions of institutional normalized
net flows (NORM FLOW) on the COVID CRASH and COVID STIMULUS dummy variables, run for the
full sample as well as separately for subsamples of funds in each Morningstar sustainability rating group.
Control variables and fixed effect configurations are as in previous tables. In all panels, standard errors are
adjusted for clustering at fund and category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).
Panel A. The Impact of COVID-19 on ESG Fund Flows
Dependent Variable:
NORM FLOW RAW FLOW
1 2 3 4
HIGH ESG × COVID CRASH -1.915 -1.715 0.006 0.027
(1.448) (1.525) (0.101) (0.102)
HIGH ESG × COVID STIMULUS -2.609* -1.632 0.056 0.125
(1.367) (1.474) (0.085) (0.092)
LOW ESG × COVID CRASH -0.771 -1.527 -0.228** -0.285**
(1.621) (1.614) (0.108) (0.113)
LOW ESG × COVID STIMULUS 1.404 -0.840 0.068 -0.080
(1.778) (1.570) (0.133) (0.126)

Observations 34,170 34,166 34,170 34,166

Category-by-Week FE Y Y Y Y
Vintage-by-Week FE Y Y Y Y
Sustainability Rating FE Y N Y N
Fund FE N Y N Y
Controls Y Y Y Y
RET/COVID Interactions Y Y Y Y
Adj R2 0.0627 0.314 0.0344 0.174

10
Table A.5. Institutional Fund Flows Around COVID-19 (continued)
Panel B. Fund ESG Ratings and Fund Flows
Dependent Variable: NORM FLOW
Pre-COVID Post-COVID
Crash Stimulus
Jan4 − Feb15 Feb22 − Mar21 Mar28 − Apr25
1 2 3
HIGH ESG 6.541*** 3.713** 3.355**
(1.495) (1.494) (1.632)
ABOVE AVG ESG 5.215*** 0.428 2.425**
(1.232) (1.151) (1.215)
BELOW AVG ESG 1.147 1.233 3.131**
(1.034) (1.080) (1.250)
LOW ESG 0.449 -1.767 1.985
(1.606) (1.539) (2.025)

Observations 14,344 9,996 9,830

Category-by-Week FE Y Y Y
Vintage-by-Week FE Y Y Y
Controls Y Y Y
Adj R2 0.0583 0.0625 0.0754

Panel C. Fund Flows Around COVID-19

Dependent Variable: NORM FLOW
High Above Average Average Below Average Low
1 2 3 4 5
COVID CRASH 0.325 -0.590 3.765*** 3.055** -1.052
(1.648) (0.953) (0.917) (1.182) (1.552)
COVID STIMULUS 3.402 4.573** 6.041*** 5.341*** 2.600
(2.435) (1.774) (1.555) (1.851) (2.295)

Observations 3,275 7,790 12,689 7,905 2,723

Category FE Y Y Y Y Y
Vintage FE Y Y Y Y Y
Controls Y Y Y Y Y
Adj R2 0.0997 0.0717 0.0513 0.0742 0.161

11
 Table A.6. Retail vs. Institutional Sustainability Fund Flows
This table presents results from pooling retail and institutional funds and running fund-week level regressions
of net flows on RETAIL − an indicator for whether the fund is a retail fund − and its interactions with
HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar
sustainability rating as of December, 2019 − and their interactions with a COVID CRASH dummy indicating
the market crash period from February 22 to March 21, 2020 and a COVID STIMULUS dummy indicating
the stimulus period from March 28 to April 25, 2020. The dependent variable is either normalized net flow
(NORM FLOW) or raw net flow (RAW FLOW). Control variables include prior month’s return, interaction
between past returns and the COVID period dummy, log of total net assets, expense ratio, dummies for star
rating upgrades and downgrades, as well as category-by-week, vintage-by-week, and sustainability rating
fixed effects. We further report results from specifications with fund-by-week fixed effects instead, dropping
fund-level control variables that are shared by retail and institutional classes of the same fund. Standard
errors are adjusted for clustering at fund and category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).

Dependent Variable:
NORM FLOW RAW FLOW
1 2 3 4
HIGH ESG × COVID CRASH × RETAIL -4.138** -3.626 -0.229** -0.136
(2.041) (2.359) (0.106) (0.106)
HIGH ESG × COVID STIMULUS × RETAIL -3.457 -4.584** -0.280** -0.292**
(2.128) (2.321) (0.119) (0.120)
LOW ESG × COVID CRASH × RETAIL 4.783** 3.253 0.288** 0.321**
(1.916) (2.435) (0.127) (0.149)
LOW ESG × COVID STIMULUS × RETAIL 3.219* 0.438 0.141 -0.047
(1.777) (2.245) (0.118) (0.139)
HIGH ESG × RETAIL -0.962 -0.403 0.014 0.016
(1.670) (1.809) (0.065) (0.067)
LOW ESG × RETAIL -1.656 -2.345 -0.013 -0.057
(1.623) (2.106) (0.067) (0.091)
COVID CRASH × RETAIL -1.380* -1.215 -0.168*** -0.189***
(0.736) (0.843) (0.048) (0.054)
COVID STIMULUS × RETAIL 1.011 1.666 -0.128* -0.120
(1.162) (1.334) (0.074) (0.082)
RETAIL -3.940*** -8.050*** -0.044** -0.131***
(0.599) (0.680) (0.022) (0.029)
HIGH ESG × COVID CRASH -2.138 0.016
(1.511) (0.096)
HIGH ESG × COVID STIMULUS -2.323 0.075
(1.473) (0.085)
LOW ESG × COVID CRASH -1.566 -0.247**
(1.628) (0.107)
LOW ESG × COVID STIMULUS 0.944 0.034
(1.790) (0.129)

Observations 72,087 49,610 72,087 49,610

Category-by-Week FE Y N Y N
Vintage-by-Week FE Y N Y N
Sustainability Rating FE Y N Y N
Fund-by-Week FE N Y N Y
Controls Y Y Y Y
RET/COVID/RETAIL Interactions Y Y Y Y
Adj R2 0.0772 0.275 0.0367 0.129

12
Table A.7. Summary Statistics of the Oxford COVID-19 Government Response
Tracker (OxCGRT)

This table presents summary statistics for countries in the Morningstar-OxCGRT matched sample. The
lockdown stringency and economic support indices are compiled by the University of Oxford and are based
on publicly available information on 18 indicators related to governmental responses to COVID-19 aggregated
into common indices reported in scores ranging from 1 to 100. A country’s index value is averaged over the
post-COVID period.

Country Number of funds Economic support index Stringency index

Australia 52 66 62
Austria 61 79 49
Belgium 68 72 58
Brazil 914 43 70
Canada 611 68 61
Chile 97 64 72
Czech Republic 1 65 49
Denmark 256 74 53
Finland 72 60 42
France 688 70 61
Germany 276 42 57
Greece 19 62 59
Hong Kong 30 97 57
India 6 62 73
Ireland 3 89 63
Italy 164 60 64
Japan 918 65 36
Malaysia 40 63 59
Mexico 5 13 66
Namibia 4 20 50
Netherlands 103 55 55
New Zealand 51 68 42
Norway 38 75 43
Portugal 9 57 64
Saudi Arabia 2 51 67
Singapore 28 77 57
Slovenia 14 60 51
South Africa 208 51 64
Spain 375 77 63
Sweden 114 48 54
Switzerland 318 38 49
Taiwan 14 33 26
Thailand 422 78 53
United Arab Emirates 2 43 55
United Kingdom 573 89 63
United States 2358 55 59

13
 Table A.8. Effects of COVID-19 on ESG Fund Flows Around the World
This table presents results from an extended international sample of open-end mutual funds. Fund-week level difference-in-differences regressions of
normalized net flows (NORM FLOW) on HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or low Morningstar
sustainability rating as of December, 2019 − and their interactions with a dummy variable indicating the post-COVID period starting in the week
ending February 22, 2020, are run on subsamples consisting of funds sold in countries with stringent vs. lax restriction policies (subsamples within
all countries, or within a subset of countries that had either low or high economic support), or low vs. high GDP growth during the COVID-19 crisis.
Countries are classified as stringent vs. lax or low vs. high support according to the Oxford COVID-19 Government Response Tracker (OxCGRT)
restriction stringency and economic support indices. Alternatively, the subsamples are pooled together and the regressions are augmented by further
interacting country level dummies indicating restriction stringency (STRINGENT) or low economic growth rates (LOW GROWTH) during the post-
COVID period. Control variables include prior month’s return, interactions between past returns and the COVID period dummy, log of total net
assets, dummies for star rating upgrades and downgrades, as well as category-by-week, vintage-by-week, country, and fund fixed effects. Standard
errors are adjusted for clustering at fund and category-by-week levels (*** p<0.01, ** p<0.05, * p<0.1).
Dependent Variable: NORM FLOW
Stringency of Lockdowns and Business Restrictions GDP Growth
All Countries Low Stimulus Countries High Stimulus Countries
Stringent Lax Pooled Stringent Lax Pooled Stringent Lax Pooled Low High Pooled

14
1 2 3 4 5 6 7 8 9 10 11 12
HIGH ESG × COVID -5.308*** -1.364 -1.364 -6.158*** 0.855 0.855 -4.225*** -3.317* -3.317* -5.312*** -3.109*** -3.109***
(0.871) (1.279) (1.275) (1.293) (1.730) (1.709) (1.152) (1.788) (1.786) (1.202) (0.960) (0.961)
LOW ESG × COVID 2.733*** 0.365 0.365 2.395** -0.006 -0.006 4.055*** -0.354 -0.354 2.644** 1.784** 1.784**
(0.793) (1.224) (1.221) (1.008) (1.859) (1.836) (1.418) (1.676) (1.673) (1.157) (0.905) (0.906)
HIGH ESG × COVID × STRINGENT -3.944** -7.013*** -0.907
(1.533) (2.137) (2.170)
LOW ESG × COVID × STRINGENT 2.368 2.401 4.409**
(1.443) (2.058) (2.175)
HIGH ESG × COVID × LOW GROWTH -2.203
(1.522)
LOW ESG × COVID × LOW GROWTH 0.860
(1.449)
HIGH ESG × COVID: 0.01 0.00 0.33 0.08
Stringent < Lax (Low < High)?

Observations 90,442 34,572 125,014 54,175 13,095 67,270 36,093 21,400 57,493 48,770 65,867 114,637
Category-by-Week FE Y Y Y Y Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y Y Y Y Y
Fund FE Y Y Y Y Y Y Y Y Y Y Y Y
Controls Y Y Y Y Y Y Y Y Y Y Y Y
Interactions & Other Terms Y Y Y Y Y Y Y Y Y Y Y Y
Adj R2 0.338 0.260 0.317 0.360 0.219 0.335 0.316 0.292 0.307 0.337 0.314 0.326
 Table A.9. Fund Performance and the Effects of COVID-19 on ESG Fund Flows
In this table, Panel A presents net flow spreads between high and low ESG funds within fund quintiles formed on Fama and French (2015) five factor
model alphas and betas estimated using returns over the previous 12 months on a rolling-window basis. Funds are classified as high or low ESG based
on their Morningstar historical sustainability scores as of December, 2019, by sequentially sorting funds within their alpha or beta quintile groups.
The average raw net flows (as a percentage of previous week’s total net assets) of high and low ESG funds within each alpha or beta quintile, as well as
the high-low spread and its t-statistic, are reported for the pre-COVID sample (January 4 to February 15, 2020) and post-COVID samples (February
22 to March 21, 2020 “crash period” and March 28 to April 25, 2020 “stimulus period”). Panel B presents results from fund-week level difference-
in-differences regressions of weekly fund returns (WEEKLY RETURN) or normalized net flows (NORM FLOW) on HIGH ESG and LOW ESG −
dummy variables indicating whether a fund had a high or low Morningstar sustainability rating as of December, 2019 − and their interactions with
dummy variables indicating the post-COVID market crash period from February 22 to March 21, 2020 (COVID CRASH) and stimulus period from
March 28 to April 25, 2020 (COVID STIMULUS). In the first two columns, the dependent variable is the fund’s WEEKLY RETURN. In the next
four columns, the dependent variable is NORM FLOW, and the post-COVID period dummies are also interacted with the fund’s market beta or
average return during the post-COVID period. Control variables include prior month’s return, interaction between past returns and the COVID
period dummy, log of total net assets, expense ratio, dummies for star rating upgrades and downgrades, as well as category-by-week, vintage-by-week,
and sustainability rating or fund fixed effects. Standard errors are adjusted for clustering at fund and category-by-week levels (*** p¡0.01, ** p¡0.05,
* p¡0.1).
Panel A. Fund Flow Differentials Controlling for Fund Alphas and Betas

15
Pre-COVID Post-COVID
Crash Stimulus
Jan4 − Feb15 Feb22 − Mar21 Mar28 − Apr25
Alpha or Beta High Low High−Low t-stat High Low High−Low t-stat High Low High−Low t-stat
Quintile ESG ESG ESG ESG ESG ESG
Alpha and Historical Sustainability Score Sequential Sorts
1 -0.31 -0.42 0.11 1.79* -0.62 -0.67 0.06 0.45 -0.29 -0.11 -0.18 -1.62
2 -0.11 -0.29 0.18 3.91*** -0.56 -0.49 -0.07 -0.63 -0.15 0.04 -0.20 -2.19**
3 -0.08 -0.22 0.14 3.35*** -0.29 -0.37 0.08 0.83 -0.13 0.06 -0.19 -2.22**
4 0.08 -0.29 0.36 6.07*** -0.30 -0.43 0.12 1.28 0.07 0.02 0.05 0.54
5 0.08 -0.07 0.16 3.29*** -0.43 -0.54 0.11 1.02 0.01 0.05 -0.04 -0.39

Beta and Historical Sustainability Score Sequential Sorts

1 0.01 -0.15 0.15 3.04*** -0.41 -0.63 0.22 1.84* -0.07 -0.17 0.10 0.90
2 0.03 -0.14 0.17 3.17*** -0.47 -0.56 0.08 0.70 -0.14 -0.12 -0.02 -0.17
3 -0.17 -0.25 0.08 1.57 -0.38 -0.47 0.09 1.03 -0.07 0.17 -0.24 -2.28**
4 -0.14 -0.31 0.16 3.49*** -0.42 -0.45 0.03 0.30 -0.06 -0.01 -0.04 -0.58
5 -0.15 -0.35 0.20 3.71*** -0.56 -0.43 -0.13 -1.17 -0.14 -0.14 0.00 -0.05
Table A.9. Fund Performance and the Effects of COVID-19 on ESG Fund Flows
(continued)
Panel B. Buying Losers and Selling Winners?
Dependent Variable:
WEEKLY RETURN NORM FLOW
1 2 3 4 5 6
HIGH ESG × COVID CRASH 0.276** 0.380*** -5.483*** -5.007*** -5.308*** -4.765***
(0.120) (0.122) (1.685) (1.576) (1.640) (1.558)
HIGH ESG × COVID STIMULUS -0.181** 0.001 -5.069*** -4.110*** -5.240*** -4.512***
(0.085) (0.082) (1.576) (1.530) (1.524) (1.517)
LOW ESG × COVID CRASH -0.382* -0.474** 3.129** 2.348* 2.421* 2.024
(0.216) (0.212) (1.466) (1.400) (1.450) (1.382)
LOW ESG × COVID STIMULUS 0.413*** 0.060 3.889** 1.523 3.058* 1.525
(0.150) (0.135) (1.708) (1.538) (1.684) (1.556)

BETA × COVID CRASH 2.469 -2.389

(4.546) (3.981)
BETA × COVID STIMULUS 7.980 2.772
(6.023) (4.641)
BETA -2.908 -1.390
(2.642) (2.077)

COVID RET × COVID CRASH -1.730*** -1.546***

(0.546) (0.527)
COVID RET × COVID STIMULUS -0.013 1.858
(1.070) (1.129)
COVID RET 1.832***
(0.444)

Observations 37,654 34,746 35,379 35,377 37,490 37,490

Category-by-Week FE Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y
Sustainability Rating FE Y N Y N Y N
Fund FE N Y N Y N Y
Controls Y Y Y Y Y Y
RET/COVID Interactions Y Y Y Y Y Y
Adj R2 0.963 0.963 0.0742 0.350 0.0762 0.353

16
 Table A.10. Past Fund Flows and the Effects of COVID-19 on ESG Fund Flows
In this table, Panel A presents net flow spreads between high and low ESG funds within fund quintiles first formed on past 12-month fund flows on
a rolling-window basis. Funds are classified as high or low ESG based on their Morningstar historical sustainability scores as of December, 2019, by
sequentially sorting funds within their past flow quintile groups. The average raw net flows (as a percentage of previous week’s total net assets) of high
and low ESG funds within each past flow quintile, as well as the high-low spread and its t-statistic, are reported for the pre-COVID sample (January
4 to February 15, 2020) and post-COVID samples (February 22 to March 21, 2020 “crash period” and March 28 to April 25, 2020 “stimulus period”).
Panel B reports results from fund-week level triple-difference regressions of normalized net flows (NORM FLOW) on HIGH ESG and LOW ESG
− dummy variables indicating whether a fund had a high or low Morningstar sustainability rating as of December, 2019 − and their interactions
with a dummy variable indicating the post-COVID period starting in the week ending February 22, 2020, further interacted with past fund flows
measured over the pre-COVID sample period from January 4 to February 15, 2020, or over the past 12 months before our sample period. Past
fund flows are either normalized by subtracting the cross-sectional mean and dividing by the standard deviation (PAST FLOW), or alternatively
used to create an indicator variable classifying whether a fund is in the top past flow quintile (HIGH PAST FLOW). Control variables include prior
month’s return, interaction between past returns and the COVID period dummy, interactions between past fund flows and the COVID period or
HIGH ESG/LOW ESG dummies, log of total net assets, expense ratio, dummies for star rating upgrades and downgrades, as well as category-by-week,

17
vintage-by-week, and sustainability rating or fund fixed effects. Standard errors are adjusted for clustering at fund and category-by-week levels (***
p¡0.01, ** p¡0.05, * p¡0.1).
Panel A. Prior 12-Month Flow and Historical Sustainability Score Sequential Sorts
Pre-COVID Post-COVID
Crash Stimulus
Jan4 − Feb15 Feb22 − Mar21 Mar28 − Apr25
Past Flow High Low High−Low t-stat High Low High−Low t-stat High Low High−Low t-stat
Quintile ESG ESG ESG ESG ESG ESG
1 -0.30 -0.41 0.11 3.29*** -0.61 -0.69 0.08 1.13 -0.32 -0.22 -0.10 -1.23
2 -0.26 -0.34 0.08 1.92* -0.68 -0.57 -0.10 -1.31 -0.30 -0.02 -0.28 -3.33***
3 -0.20 -0.40 0.19 3.96*** -0.56 -0.77 0.21 1.85* -0.23 -0.17 -0.07 -0.87
4 -0.02 -0.23 0.21 3.26*** -0.37 -0.47 0.09 0.78 -0.05 -0.09 0.04 0.42
5 0.42 0.04 0.39 6.29*** 0.08 -0.06 0.15 1.20 0.39 0.35 0.04 0.38
 Table A.10. Past Fund Flows and the Effects of COVID-19 on ESG Fund Flows (continued)
Panel B. Regressions
Dependent Variable: NORM FLOW
Past Flow: Jan4 - Feb15 Past Flow: Pre-Sample 12 Months
1 2 3 4 5 6 7 8
HIGH ESG × COVID -5.358*** -4.847*** -4.881*** -4.516*** -5.938*** -5.000*** -4.498*** -3.585***
(1.389) (1.412) (1.358) (1.395) (1.295) (1.354) (1.337) (1.285)
HIGH ESG × PAST FLOW × COVID 1.327 2.501 -3.748 -2.674
(3.562) (3.536) (4.010) (3.758)
HIGH ESG × HIGH PAST FLOW × COVID 1.688 2.164 -3.288 -4.326
(2.846) (2.974) (3.333) (3.549)

18
LOW ESG × COVID 2.875** 2.007* 2.836** 1.788 3.799*** 2.272* 2.491* 1.719
(1.187) (1.148) (1.273) (1.193) (1.291) (1.270) (1.299) (1.267)
LOW ESG × PAST FLOW × COVID 0.081 -3.482 2.508 0.399
(5.384) (2.753) (4.415) (4.261)
LOW ESG × HIGH PAST FLOW × COVID 0.480 0.880 5.333 3.022
(3.646) (3.681) (3.777) (3.474)

Observations 37,654 37,652 37,654 37,652 37,392 37,391 37,392 37,391

Category-by-Week FE Y Y Y Y Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y Y Y
Sustainability Rating FE Y N Y N Y N Y N
Fund FE N Y N Y N Y N Y
Controls / Interactions Y Y Y Y Y Y Y Y
Adj R2 0.126 0.355 0.176 0.362 0.0841 0.350 0.127 0.352
 Table A.11. Responses to Alternative Structural Shifts Around COVID-19?
This table presents results from fund-week level difference-in-differences regressions of normalized net flows
(NORM FLOW) on HIGH ESG and LOW ESG − dummy variables indicating whether a fund had a high or
low Morningstar sustainability rating as of December, 2019 − and their interactions with a dummy variable
indicating the post-COVID period starting in the week ending February 22, 2020. Control variables include
prior month’s return, interaction between past returns and the COVID period dummy, log of total net
assets, dummies for star rating upgrades and downgrades, as well as category-by-week, vintage-by-week, and
sustainability rating or fund fixed effects. In columns 1 to 6, we additionally control for the fund’s status as an
index fund (INDEX FUND) or its investment focus in healthcare or tech sectors (HEALTHCARE SECTOR
or TECH SECTOR), along with their interactions with the COVID time dummy variable. In columns 3 to
6, category-by-week fixed effects are replaced by category fixed effects to accommodate the sector × COVID
interaction terms. Standard errors are adjusted for clustering at fund and category-by-week levels (***
p<0.01, ** p<0.05, * p<0.1).

Dependent Variables: NORM FLOW

1 2 3 4 5 6
HIGH ESG × COVID -5.781*** -4.836*** -5.675*** -4.695*** -5.729*** -4.750***
(1.423) (1.340) (1.400) (1.351) (1.403) (1.354)
LOW ESG × COVID 3.960*** 2.313* 3.867*** 2.421** 3.965*** 2.500**
(1.274) (1.186) (1.184) (1.170) (1.188) (1.172)
INDEX FUND × COVID 1.367 0.773
(1.838) (1.619)
INDEX FUND 2.069
(1.807)
HEALTHCARE SECTOR × COVID 11.390*** 15.380***
(4.178) (4.940)
TECH SECTOR × COVID -6.483* -5.083
(3.382) (3.695)

Observations 37,654 37,652 37,667 37,665 37,667 37,665

Category-by-Week FE Y Y N N N N
Category FE N N Y Y Y Y
Vintage-by-Week FE Y Y Y Y Y Y
Sustainability Rating FE Y N Y N Y N
Fund FE N Y N Y N Y
Controls Y Y Y Y Y Y
Adj R2 0.0738 0.351 0.0614 0.339 0.0612 0.338

19
A.II Robustness

In this section, we provide evidence ensuring that our key results are not driven by past
and contemporaneous differences in performance or differences in past flows between high
and low ESG funds, or investors shifting their allocation across different types of investments.

A Fund Performance

We start by examining whether our results can be explained by past

or contemporaneous differences in performance between high and low ESG funds. First, we
examine the effects of sustainability ratings on flow responses to COVID-19 within groups of
funds first sorted on measures of ex-ante risk-adjusted performance or market risk exposure.
Panel A of Table A.9 reports results from this analysis. We first sort funds on their Fama and
French (2015) five-factor alphas or betas, computed using the previous 12 months’ returns on
a rolling window basis. Subsequently, funds are sorted into quintiles based on the historical
sustainability scores of their portfolios (which are used by Morningstar to assign globe
ratings) within each alpha or beta quintile. We then report the mean and t-statistic of the
difference in weekly net flows between high and low ESG funds (i.e., top and bottom historical
sustainability score quintiles) within each alpha or beta quintile. Conducting this exercise
over the pre-COVID and post-COVID periods, we show that high ESG funds attract more
flows than low ESG funds prior to the COVID-19 shock within all alpha and beta quintiles,
and that this difference disappears afterwards during both the crash and stimulus periods.
Next, we evaluate an alternative explanation that the disproportionate drop in high
ESG flows may be driven by differences in contemporaneous returns. Specifically, retail
investors may follow a “buying the dip” strategy where they buy into funds that depreciate
sharply in value in anticipation of higher future expected returns. Conversely, investors
may sell their best-performing funds to preserve liquidity in their portfolios, consistent
with evidence that stocks and mutual funds with high ESG ratings performed relatively

20
better during the COVID-19 crisis (see, e.g., Albuquerque et al. (2020), Ding et al. (2021),
and Pastor and Vorsatz (2020)).
Panel B of Table A.9 indicates that this is unlikely to be the main explanation for our
results. An analysis of the impact of COVID-19 on weekly fund returns reveals that high
ESG funds earn relatively higher returns only during the market crash (consistent with Al-
buquerque et al. (2020) and Ding et al. (2021)), but not during the post-stimulus period. In
fact, high (low) ESG fund returns are relatively lower (higher) during the post-stimulus pe-
riod (see column 1), and this return difference disappears altogether when fund fixed effects
are included (see column 2). These transitory return differences stand in contrast with the
persistent decline in high ESG fund flows, which are substantially lower during both the mar-
ket crash and post-stimulus periods (see columns 3 to 6), and are therefore inconsistent with
the notion that our findings may be driven by investors “buying losers and selling winners”.
More generally, changes in ESG fund flows around COVID-19 may also be correlated
with changes in risk preferences or beliefs about future expected returns. To account
for these effects, we add additional controls to our baseline fund flow regressions in the last
four columns of Panel B. These controls are the fund’s market beta estimated using daily
returns over monthly rolling windows (to capture changes in flows into high beta funds) and
the fund’s performance during the entire post-COVID period (to capture changes in flows
to funds in response to their post-COVID performance), along with their interactions with
post-COVID time dummy variables. None of these controls subsume our baseline results.
However, it is important to note that retail investors may well have bought the dip
or changed their risk preferences and expectations during the COVID-19 shock.35 Our tests
do not preclude these possibilities but merely clarify that such channels do not fully
explain our main results, solidifying our interpretation that economic distress induced by
COVID-19 was a key driver for the drop in SRI demand by retail investors.
35
Glossner et al. (2021) and Ozik et al. (2021) indeed show that retail investors changed their investment
behavior during COVID-19, becoming liquidity providers for institutional trades.

21
B Past Fund Flows and Fund Size

Another fund characteristic that can confound our results is past fund flow. One
concern is that our results may be explained by the fact that pre-COVID flows were greater
for high ESG funds, i.e., that high ESG funds were more popular ex-ante (see Figure 1 and
Table 2). Furthermore, if the pre-COVID high ESG fund flows were driven by new retail
investors who were more likely to withdraw at the onset of the pandemic, the greater drop in
post-COVID high ESG fund flows would be driven by a change in the distribution of investors
rather than investor responses to an economic shock. A related concern is that net flows are
computed as a fraction of total net assets, and that the change in net flows for high ESG
funds may be inflated because they tend to have smaller net assets (see Panel B of Table 1).
Some of these issues, especially those related to fund size, are mitigated by using nor-
malized net flows as our main outcome variable. Variation in this variable captures changes
in fund flows as compared to other funds in the same net asset decile as of the previous period.
To the extent that past flows affect accumulated net assets, this normalization approach also
partially alleviates confounding effects of past popularity. Previous studies in the mutual
fund flow literature have also adopted this strategy (see Hartzmark and Sussman (2019)).
Nonetheless, we conduct additional analysis to further inoculate our results from the
effects of past fund flows. These results are reported in Table A.10. In Panel A, we sort funds
into quintiles first by their past 12-months’ cumulative dollar flows and subsequently by their
historical sustainability scores. We then report the mean and t-statistic of the difference in
weekly net flows between high and low ESG funds within each past flow quintile. Reporting
this separately over the pre-COVID and post-COVID periods, we find that high ESG funds
attract more flows than low ESG funds prior to COVID-19 within all past flow quintiles,
but that this is no longer the case during the post-COVID crash and stimulus periods.
In Panel B of Table A.10, we also show that our results are robust to controlling for
the effects of past fund flows in regressions that include triple interactions of the
HIGH ESG or LOW ESG fund dummy variable, the COVID time dummy variable, and

22
the fund’s past flows. We measure past fund flows over the pre-COVID sample period from
January 4 to February 15, 2020, or over the past 12 months before our sample period.
These past fund flows are either normalized by subtracting the cross-sectional mean and
dividing by the standard deviation (PAST FLOW), or alternatively used to create an
indicator variable classifying whether a fund is in the top past flow quintile
(HIGH PAST FLOW). In all specifications, the triple interaction term is not statistically
different from zero, while the interaction term between the HIGH ESG and COVID period
dummies is similar in magnitude and significance to our baseline results (see Table 2).
While the coefficient on the triple interaction term is economically larger when past flows
are measured over the pre-sample 12-month period, they remain statistically insignificant
and do not subsume the baseline coefficients. These results show that our main findings are
not driven by the fact that high ESG funds experienced greater past flows.

C Structural Shift in Investor Allocation

We also test whether investors have changed their appetite for active rather than
passive investing, or turned their attention to sectors affected by COVID-19 (e.g.,
healthcare or technology). In Table A.11, we directly control for shifts to and from passive
funds or COVID-related sector funds. We do this by adding INDEX FUND,
HEALTHCARE SECTOR, or TECH SECTOR fund dummy variables to our baseline
difference-in-differences regressions along with their interactions with the post-COVID
period time dummy variable. We find that these additional controls do not affect our
baseline result that high ESG fund flows decline after COVID-19, despite some evidence of
increased flows to healthcare sector funds (consistent with investors seeking opportunities
related to COVID-19) and decreased flows to tech sector funds (consistent with investors
increasingly investing in tech stocks directly).

23
A.III Survey

This appendix provides details on the design of the survey experiment discussed in
Section IV.D and reported in Table 6.

A Recruitment of Survey Participants

In November 2021, we recruited 1,000 participants through Prolific, an online

survey participant recruitment platform that provides access to a large and high-quality
pool of participants. Prolific has several advantages over other online platforms. First, it
provides several pre-set screening filters based on past participant responses as well as basic
demographic data. Second, Prolific participants have been found to be more attentive and
produce responses of higher quality compared to other platforms such as Amazon MTurk
(see, e.g., Peer, Brandimarte, Samat, and Acquisti (2017), Palan and Schitter (2018),
and Bergman, Chinco, Hartzmark, and Sussman (2020)). For example, Prolific prohibits
participants from frequently changing answers to the pre-screening questions and reviews the
plausibility of any submitted changes. Prolific also monitors accounts to block malicious and
poor-quality participants from enrolling in future surveys. This allows us to target partici-
pants who reside in the U.S. and previously answered “Yes” to one of Prolific’s pre-screening
questions, “Have you ever made investments (either personal or through your employment)
in the common stock or shares of a company?”. To corroborate this filter on prior investment
experience, we also ask in our survey whether participants have invested in stocks and/or
mutual funds in the past five years. We also provide explanations in simple terms of what
mutual funds, average returns, volatility, and sustainability ratings are. To proceed with our
survey, we require participants to pass a comprehension check that tests whether they have
understood these concepts. We exclude responses from participants who failed an attention
check half-way into the survey to ensure participants have read and answered our questions
carefully. The final sample consists of 808 survey responses. Summary statistics of the

24
participants are discussed in the main text in Section D and presented in Panel A of Table 6.

B Survey Design

The survey is presented in parsimonious language and graphics. After signing a

consent form, participants are given simple explanations of mutual funds, average returns,
volatility, and sustainability ratings. These concepts are described in non-technical terms
to facilitate comprehension, as shown below. Notably, the definition of a sustainability
rating is described as neutrally as possible. Moreover, following Chinco et al. (2022),
information on returns and volatility are presented this way instead of being described as
“expected returns” or “expected volatility”, which are conceptually harder for non-expert
participants to comprehend.

On the following pages, you will be presented with information about different
mutual funds that invest in well-diversified portfolios of different stocks. The
value of a mutual fund reflects the value of its investments, so when the stocks it
invests in have higher prices, the value of the mutual fund will be higher.
You will be shown numeric values for the average return per year and annual
volatility of the mutual funds. When the average return per year is higher you
should expect greater increases in value in a given year. When volatility is
higher, you should expect greater swings, for example higher highs and lower
lows, than if volatility is lower.
You will also be shown information about a mutual fund’s sustainability rating.
Funds with higher sustainability ratings invest in corporations with higher
sustainability ratings. The aim of a sustainability rating is to measure the
extent of positive environmental and social impact, as well as better governance
structures (for example, environmentally friendly production processes, fair
treatment of workers, and support of local communities). Sustainability ratings
are also known as “ESG rating”, where “ESG”stands for “environmental, social
and governance”.

After reading this information, participants are required to pass a comprehension

test in which they are asked to correctly answer three multiple-choice questions: (i) “When

25
average return is higher, which of the following should you expect? ”, (ii) “When volatility is
higher, which of the following should you expect? ”, and (iii) “What does a higher
sustainability rating aim to measure? ”. Participants who pass this comprehension check
are then allowed to proceed with the survey experiment, and are given further instructions
regarding the six independent rounds of questions they will be asked to answer.

You have passed the comprehension check.

You will now see six rounds of questions. Each round you will see information
about the average return, volatility, and sustainability rating of two different
mutual funds that invest in well-diversified portfolios of stocks. The average
return and volatility are illustrated in a graph that shows the cumulative return
on a $100 investment over the past 10 years. The sustainability rating is
presented in the form of a score from 1 (lowest sustainability) to 5 (highest
sustainability). We will also ask you to suppose hypothetical changes to your
current income.
The information on mutual funds and your income are not real, and they will
vary from round to round. Please treat this information as the relevant
information to be used to inform your investment decision, as if it were real.
Also, please treat each round as independent of each other.

In each round of the survey experiment, participants are shown hypothetical informa-
tion about the average returns, volatility and sustainability ratings of two different mutual
funds, A and B. The average return and volatility of each fund are illustrated in figures
displaying the cumulative return on an initial investment of $100 over the past 10 years. Fol-
lowing Chinco et al. (2022), we ask participants to use this past information as the relevant
information to be used for their investment decision, so that the average returns are under-
stood as the appropriate expected returns going forward. Importantly, the two funds are ar-
bitrarily assigned different sustainability ratings displayed in the same fashion as Morningstar
sustainability ratings: Fund A is assigned an “average” sustainability rating of three globes,
and fund B is assigned a “high” sustainability rating of five globes. However, we do not over-
emphasize the sustainability ratings in ways that can influence how participants perceive

26
the framing of the survey. For example, sustainability ratings are shown below the average
returns and volatility of funds, rather than as the first and foremost item participants see.36
Each round, participants are asked to allocate their hypothetical investments between
funds A and B as a fraction of 100% (i.e., Allocations across the two funds must total
100%). Throughout the six independent rounds of the experiment, both the participant’s
hypothetical income as well as the return difference between funds A and B vary. Participants
see an average return on fund A fixed at 8%, but randomly draw an average return on fund
B of either 4%, 5%, 6%, 7%, or 8%. In the first two rounds, we ask participants to allocate
their investments given their current income. In the next two rounds, we ask them to
suppose that they had lost 25% of their income, and in the final two rounds that they had
lost 50% of their income. In all rounds, the two funds maintain their respective three and five
globe sustainability ratings, and volatility is fixed at 10% for both funds. This allows us to
estimate the effects of income shocks and expected returns on the allocations between funds
A and B. A screenshot of the survey interface as seen by participants is shown in Figure A.5.

Suppose you lose 25% of your income (for example, because you move to a
lower-paying job, you are furloughed, your business loses customers, etc..).
Given the information presented above, how would you allocate your financial
investments between Fund A and Fund B? (must total 100%)

After the six-round experiment, we subsequently ask participants questions to elicit

their return expectations on high ESG funds and average ESG funds. To do so, we show
participants real-life information on the average returns, volatility, and sustainability
ratings of the MSCI USA Standard index fund and MSCI USA SRI index fund over the
period from 2010 to 2019, and ask what they expect their future average returns will be
from 2022 to 2032. This questionnaire is shown in Figure A.6.
After participants provide their future return estimates for the MSCI USA Standard
and MSCI USA SRI funds, we ask them “Would your return estimates for the two funds over
36
The title of the survey as shown to participants is also broadly framed as “An Experimental Survey of
Financial Investments by Individuals”, so that participants do not perceive the survey as specifically focused
on sustainable investing, at least until they complete the first part of the experiment.

27
2022 - 2032 be different if the COVID-19 pandemic had not happened? ”. If their answer is
“Yes”, they are again presented with the same information and asked to provide their return
estimates under the counterfactual scenario in which the COVID-19 crisis did not happen.

If the COVID-19 pandemic had not happened, what do you think would be the
average return of the MSCI USA Standard and MSCI USA SRI funds over
2022 - 2032 in percentage points? (for example, enter 5.3% as 5.3, omitting the
%-sign)

Following the earlier section of the survey, we additionally ask participants a

number of questions about their view on sustainable investing and their investment
experience. The responses to these questions are summarized in Panel A of Table 6.

• Why are sustainability issues important for you as an investor, if at all? Select all
that apply.

• Compared to before the COVID-19 pandemic, do you think sustainability issues have
become more or less important as societal issues?

• Compared to before the COVID-19 pandemic, do you think commitment to

sustainability issues will be a more or less important source of financial value for
corporations?

• Have you personally invested in mutual funds and/or stocks in the last five years?

• Have you recently held a professional occupation that required you to regularly trade
financial instruments? (for example, asset management, mutual fund, hedge fund,
private equity, trading, etc.)

• In making your financial investments, do you consider sustainability issues of the

companies or assets you invest in?

• How did your economic situation change during the first few months of the
COVID-19 pandemic (Feb - April 2020)?

• Did you lose your job during the COVID-19 pandemic?

28
 In the middle of the survey, we also include the question, “If you are reading carefully,
please select the Other option and enter the word Read in the space provided ”, as an attention
check. In our analysis, we exclude responses from participants who fail this attention check.
Finally, we directly ask participants how much annual returns they would be willing
to give up in order to invest in an SRI fund with a high sustainability rating rather than
an average fund, given hypothetical income scenarios. These explicit questions serve to cor-
roborate the survey experiments that elicit whether income shocks matter for SRI demand.

Given your current income, how much annual return (in percentage points)
would you be willing to give up to invest $1,000 in a mutual fund with the
highest sustainability rating (5 globes) rather than average sustainability rating
(3 globes)? (for example, enter 5.3% as 5.3, omitting the %-sign)

Suppose you lose 25% of your income (for example, because you move to a
lower-paying job, you are furloughed, your business loses customers, etc..). How
much annual return (in percentage points) would you be willing to give up to
invest $1,000 in a mutual fund with the highest sustainability rating (5 globes)
rather than average sustainability rating (3 globes)? (for example, enter 5.3% as
5.3, omitting the %-sign)

Suppose you lose 50% of your income (for example, because you move to a
lower-paying job, you are furloughed, your business loses customers, etc..). How
much annual return (in percentage points) would you be willing to give up to
invest $1,000 in a mutual fund with the highest sustainability rating (5 globes)
rather than average sustainability rating (3 globes)? (for example, enter 5.3% as
5.3, omitting the %-sign)

We conclude the survey by asking participants a multiple-choice question to indicate

their income brackets and an open question on whether anything was confusing. Other
demographic data provided by Prolific are reported in Panel A of Table 6.

29
Figure A.5. Screenshot of the Survey Experiment (25% Income Shock Scenario)

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Tools


Suppose you lose 25% of your income (for example, because you move to a
lower-paying job, you are furloughed, your business loses customers, etc..). Given
the information presented above, how would you allocate your financial
investments between Fund A and Fund B? (must total 100%)

Fund A 0

Fund B 0

Total 0

Powered by Qualtrics A

30
Figure A.6. Screenshot of the Survey Questionnaire on Return Expectations

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Tools


The information above presents real-life information on the returns

of two different funds. 

The MSCI USA Standard invests in medium-sized and large U.S.

companies. 

The MSCI USA SRI (where SRI stands for Socially Responsible

Investing) invests in medium-sized and large U.S. companies with
particularly high sustainability ratings and excludes stocks with low
sustainability ratings.

What do you think will be the average return of the MSCI USA
Standard and MSCI USA SRI funds over 2022 - 2032 in percentage
points? (for example, enter 5.3% as 5.3, omitting the %-sign)

MSCI USA Standard:

MSCI USA SRI:

31
A.IV Simple Model of SRI Demand

To illustrate potential determinants of SRI demand by individual investors, this

appendix sketches a simple asset pricing model in which investors derive utility from
current and future consumption, as well as from holding sustainable (i.e., high ESG) assets.
In a model with two periods, t and t + 1, the representative investor has access to
two investment assets, a “dirty” (i.e., low ESG) investment and a “sustainable” (i.e, high
ESG) investment. Investors face an exogenous income stream, yt and yt+1 , and consume ct
and ct+1 by deciding how much of yt to allocate to dirty investments, xdt , and to sustainable
investments, xst . In time t + 1, dirty and sustainable investments generate returns, rt+1
d
and
s
rt+1 , respectively. Consistent with empirical evidence (see, e.g., Bolton and Kacperczyk
(2021) and Pastor et al. (2021a)) and theoretical models of SRI demand (see Pastor et al.
(2021b)), we assume that dirty investments command higher expected returns than sustain-
d s
able investments, such that E[rt+1 ] > E[rt+1 ].37 Investors derive non-pecuniary utility, v(xst ),
from holding sustainable investments. Investors maximize their utility function, given by

(A.1) U (ct , ct+1 , xst ) = u(ct ) + βEt [u(ct+1 )] + v(xst ),

where u(.) and v(.) are increasing and concave functions.

The budget constraints at time t and t + 1 are given by

(A.2) ct + xst + xdt = yt ,

d
(A.3) ct+1 = yt+1 + (1 + rt+1 )xdt + (1 + rt+1
s
)xst .

Investors choose xdt and xst that maximize Equation (A.1) subject to Equation (A.2)
37
Note that higher past realized returns may reflect unexpected increases in environmental concerns and
are not inconsistent with lower expected returns going forward (see Pastor et al. (2021a)). Lower expected
returns on high ESG assets by retail investors is also consistent with responses from our survey, where
respondents expect the MSCI Standard index to perform better than the MSCI SRI index (see Figure 5).

32
and Equation (A.3). The first order conditions with respect to xdt and xst are, respectively,

d
 
(A.4) Et (1 + rt+1 )Mt+1 = 1,
v 0 (xs )
s
)Mt+1 = 1 − 0 t ,
 
(A.5) Et (1 + rt+1
u (ct )

0
where Mt+1 = β uu(c0 (ct+1
t)
)
is the stochastic discount factor.
Combining Equation (A.4) and Equation (A.5) yields the following equation, which
characterizes the demand for sustainable investments, xst .

v 0 (xst ) = βEt u0 (ct+1 )(rt+1

d s
 
− rt+1 ) .

In this equation, investors weigh the marginal utility from holding high ESG assets
against the loss of consumption utility due to the lower expected returns on sustainable
investments relative to dirty investments. This highlights two important channels that may
explain the observed decline in the demand for sustainable investments following COVID-19.
First, the demand for sustainable investments is lower when the gap between the
 d s

expected returns on dirty and sustainable investments, Et (rt+1 − rt+1 ) , is wider. This
implies that changes in beliefs about expected returns could explain the decline in SRI
demand if investors lowered (raised) their expectations about future returns on sustainable
(dirty) assets after the COVID-19 shock. In our survey, we find this not to be the case
among retail investors.
Second, the demand for sustainable investments is lower when the marginal utility
of consumption, Et [u0 (ct+1 )], is higher. This implies that investors would shift away from
sustainable investments in the face of an exogenous income shock, because the marginal
utility from consumption that can be obtained through dirty investments is higher after
such a shock. This channel is highlighted by our findings − both in the COVID-19 setting
and in the survey experiment − that retail SRI demand is highly sensitive to income shocks.

33