ESG Mutual Fund Attributes and Investor Behavior

In this paper, we investigate investor behavior related to the attributes of ESG mutual funds. Specifically, we examine whether financial and extrafinancial attributes enter the investor’s decision problem additively or interact multiplicatively. We derive the return elasticity of investor demand under both hypotheses, which yields distinct predictions for the flow-performance relationship. Using a dataset of 6,965 European active equity mutual funds from August 2018 to June 2025, we empirically test these competing hypotheses. Our results indicate that the sensitivity of fund flows to lagged returns is greater for ESG funds than for conventional funds. Accordingly, we reject specifications in which financial and extrafinancial attributes enter the investor’s decision problem additively. Our findings provide new insights into investor demand for fund attributes and ESG-washing practices.