The Nexus of Disclosure, Complexity, and Understanding: Insights from Sustainable Mutual Fund Consumers

The financial sector has been identified as an actor with clear responsibility in the transition towards a more sustainable society.This affects national and international regulations for lending and investment products and thus both the financial service providers and their different types of customers.This study focuses on customer relations within the retail banking sector and explores how consumers understand the information disclosed in three mutual funds with different degrees of sustainability.The impact of objective knowledge such as financial literacy, sustainability literacy, and sustainable finance literacy on the comprehension of mutual fund information was also investigated.Getting financial advice plays a pivotal role in enhancing consumers' understanding of financial products.Consequently, this study also delves into the financial adviceseeking behavior of consumers, with a specific focus on enhancing their decision-making processes regarding sustainable investments.We surveyed 504 individuals who in 2023 owned sustainable investments in Sweden, and tested their knowledge in finance, sustainability, and sustainable finance.The participants were asked to classify three mutual funds according to their degree of sustainability according to Articles 6, 8, and 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosure in the financial services sector, based on three short texts taken from real mutual fund information documents.The findings show that participants found it more difficult to understand mutual funds with the highest sustainability degree.We also documented that the majority of participants have high financial literacy but relatively low sustainability literacy and sustainable finance literacy.Those who are more knowledgeable tend to be able to correctly classify the fund.Getting financial advice, both general and specific on sustainable investments was associated with a better comprehension of mutual funds.The results suggest that the information provided by the fund managers needs to find a balance between fulfilling the disclosure requirements and making the information correct, fair, clear, not misleading, easy to understand, and concise for the consumers.Moreover, knowledge in sustainability and sustainable finance is needed in addition to financial knowledge to assist consumers in making optimal decisions on sustainable investments.Understanding this new complexity which influences consumer understanding of sustainable funds is an important contribution for researchers, businesses, and policy makers.