Understanding sustainable investments: an empirical study of best-in-class mutual funds

Belén López Vázquez, Jóse-MarÍa MartÍnez-Gonzalo, Ana M. Gómez Olmedo and María Fernanda Guevara Riera

Journal of Risk Finance, 2024, vol. 26, issue 1, 78-97

Abstract: Purpose - This research aims to examine mutual funds investment behavior to further understand the dynamics of sustainable investments in the global marketplace and their evolution. Sustainable investing is increasing in the market due to (1) its performance, (2) the investors' criteria and (3) the companies' interest in contributing to sustainable development. Design/methodology/approach - To explore this area, we evaluated Morningstar's best-in-class funds, that is, five-star rated in profitability and five globes in sustainability, while adding rankings such as Sustainalytics to further test the performance against ESG criteria. To test the hypotheses, we used regression statistics to find correlations between quantitative and qualitative factors such as diversification of the investments per sector and region or fund category. Findings - The results show that funds invested in different sectors, such as technology and healthcare, contributed to an increase in the overall profitability of the fund, while investments in other industries were less profitable. The contribution of this study is based on empirical data that shows why and how ESG investments are growing based on their market evolution. Originality/value - This study aims to advance knowledge of SRI investment, profitability and market growth, particularly by showing sustainable investment dynamics per industry (e.g. Technology) and regions (e.g. Europe) which not only favor future investments but also sustainable economic growth.

Keywords: ISR; ESG; Mutual funds; Sustainable development; Profitable funds (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-05-2024-0131

DOI: 10.1108/JRF-05-2024-0131

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