What attracts sustainable fund flows? Prospectus versus ratings*

Many studies indicate that sustainability ratings attract high fund flows, reinforcing the dominant role of rating agencies for the fund industry. However, these studies neglect prospectus information, which is very likely to influence investors' decisions. By analyzing 23,606 equity mutual funds and ETFs, we find that self-declared sustainability statements in fund prospectus are the main driver of retail and institutional fund flows. Additionally, sustainability references in the fund name and the fund’s employed sustainability investment approach significantly affect flows. External sustainability ratings on the other hand appear to be less relevant for fund flows than previous studies suggest.