Firm-Level ESG Information and Active Fund Management
75 Pages Posted: 29 Jan 2021 Last revised: 9 Apr 2024
Date Written: October 1, 2022
Abstract
Using a novel dataset containing daily snapshots of firm-level ESG information, we examine whether and how active mutual fund managers integrate ESG information into their portfolio decisions. We find that fund managers actively trade on ESG information and have improved portfolio performance. The superior risk-adjusted fund returns are due to the incorporation of ESG information into asset prices rather than price pressure on green assets. Fund managers also incorporate ESG information to cater to investor demand, especially during periods of greater ESG awareness. In the cross section, funds located in Democratic states and those with better ESG ratings exhibit a stronger propensity of ESG integration.
Keywords: ESG integration; sustainable investing; mutual funds; investment skill; catering.
JEL Classification: G11, G23
Suggested Citation: Suggested Citation