Greenwashing allegations are on the rise. Corporate sustainability efforts are being politicized. The glaciers are melting.

That's all pretty grim news for most investors. But maybe it's a good thing: Many will buy more sustainable funds when sad and depressed, according to three professors who analyzed how emotions play a key role in purchasing decisions.

"When the mood decreases, it leads to higher flows to sustainable funds," said Alexandre Garel, an associate professor at Audencia in Nantes, France.

Garel, along with professors Adrian Fernandez-Perez at Auckland University of Technology in New Zealand and Ivan Indriawan of University at Adelaide in Australia, decided to study how emotions play a role in determining people's preference for environmental, social and governance-oriented investments.

They focused on two conflicting theories:

• The first was based on the idea that sustainable assets are generally less risky, and that people with "a lower mood" tend to be more risk-averse.
• The second and competing theory examined the notion that "a positive mood" promotes pro-social behaviors and greater altruism.

Both theories were tested, and the overwhelming tendency was for people with a worse mood to devote a larger proportion of their money to sustainable assets because of the perception that they are less risky investments, Garel said.

To capture the change in the average mood of households for a given month, the professors used a metric called "onset and recovery," or OR.

Higher OR indicates an increase in symptomatic depression and therefore a lower mood, Garel said. For people living in the Northern Hemisphere, OR is high during September, low during March, and more moderate during the summer and winter months for people living above the equator. People living in Southern Hemisphere countries experience the same pattern with a six-month shift.

The scholars then examined OR levels in relation to investments in sustainable equity mutual funds in 25 countries during the 2018 to 2021 period.

In general, mutual funds with higher sustainability ratings from researchers at Morningstar Inc. tended to attract more capital, suggesting that investors value these types of investments. More importantly, however, they found that when there was an increase in the percentage of seasonally depressed individuals, capital inflows into high-sustainability funds increased relative to low-sustainability alternatives by an extra 0.07% per month, or 0.84% per year.

That translates to additional capital inflows of $840,000 a year for mutual funds with an average size of $100 million. The numbers support the conclusion that lower moods lead to more investments in ESG funds, Garel said.

"However, our study comes with a caveat," he said. "Given the features of our data, we cannot test if the investors' mood improves after investing in sustainable funds."

The study is fairly black and white in that it focuses on emotions and investing, and the conclusions aren't meant to imply that "sadness is good for the environment or society," Garel said.

Tim Quinson reports for Bloomberg News.

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