Navigating the Green Maze: How the Multifaceted Impact of Literacy Shapes Consumers' Understanding of Sustainable Mutual Funds

The rising demand for sustainable investments reflects investors' increasing interest in aligning their financial goals with environmental and social values. Investors need to have a good comprehension of both the financial and sustainability dimensions of mutual funds to make well‐informed decisions. This study investigates the role of investors' knowledge of finance, sustainability, and sustainable finance in determining sustainable mutual fund comprehension. Data were collected through a survey of 504 Swedish investors. This study used a set of questions to measure the literacy scores and three short texts from real mutual funds with different sustainability labels to measure investors' understanding. The results indicate that investors demonstrate a clearer comprehension of mutual funds with lower sustainability degrees compared to those with higher degrees or no sustainability label. Investors with higher objective financial literacy, subjective sustainability literacy, and objective sustainable finance literacy are more likely to have a better understanding of sustainable mutual funds.