The impact of the Morningstar Sustainability Rating on mutual fund flows

We examine the effect of the introduction of Morningstar's Sustainability Rating in March 2016 on mutual fund flows. Exploiting this shock to the availability of sustainability information, we find strong evidence that retail investors shift money away from low-rated and into high-rated funds. An average high-rated retail fund receives between $4.1 million and $10.1 million higher net flows and an average low-rated retail fund suffers from $1.0 million to $5.0 million lower net flows than an average-rated fund during the first year after the publication of the Rating. Institutional investors react much more weakly to the publication of the Rating.