We find evidence of ESG tournament where Morningstar Sustainability Ratings of mutual funds can be used as a new tool for growth fund managers to compete with peers and attract investors’ flow. Past “loser” funds increase the ESG of the stocks in their portfolios to affect the funds’ sustainability ratings at the year end more than past “winners” by selling non-ESG stocks and opening new positions for ESG stocks. One-, two-, and four-globe growth funds are the main participants in the ESG tournament, corresponding to the outflow (inflow) effects of one- and two- (five-) globe funds. Investors respond to the tournament behavior: “losers” funds with an increase in globe ratings experience fewer outflows than those without an increase.
