Fund companies regularly issue shareholder letters to communicate with investors. This study uses textual analysis to examine investor reactions to ESG (Environmental, Social, and Governance) information disclosed in these letters. We find that ESG disclosure attracts abnormal inflows compared to matched samples. These results remain robust across alternative controls, fixed effects and different estimation methods. Notably, the ESG flow effect is more pronounced among institutional funds and in the post-Paris Agreement period, aligning with investors’ values driven considerations. However, ESG disclosure is not linked to future fund performance, contradicting the notion that such disclosure is tied to profitable investments. Furthermore, distinguishing between ESG-specific and general information using AI reveals that funds providing ESG-specific disclosure enhance their ESG performance, whereas those offering only general information do not, highlighting that a failure to differentiate between types of ESG information may create a misleading impression of sustainability efforts. Last, we show that managers may face a trade-off in voluntarily disclosing ESG shareholder letters, as the inflow benefits come with the risk of greater outflows if ESG performance disappoints investors.
