Firm-level ESG information and active fund management

Linquan Chen, Yao Chen, Alok Kumar and Woon Sau Leung

Journal of Financial Intermediation, 2024, vol. 60, issue C

Abstract: Using a novel dataset with daily firm-level ESG information, we examine whether and how active mutual fund managers integrate ESG information into their portfolio decisions. Our results show that managers actively trade on ESG information, leading to improved portfolio performance. This enhanced risk-adjusted return is attributed to the incorporation of ESG information into asset prices rather than to price pressure on green assets. Additionally, fund managers adjust their portfolios to cater to investor demand, especially during periods of heightened ESG awareness. Further, funds located in Democratic states and those with higher ESG ratings exhibit a stronger inclination towards ESG integration.

Keywords: ESG integration; Sustainable investing; Mutual funds; Investment skill; Catering (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:60:y:2024:i:c:s1042957324000500

DOI: 10.1016/j.jfi.2024.101122

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