Climate risk, ESG ratings, and the flow-performance relationship in mutual funds

Sara Ali, Ihsan Badshah, Riza Demirer, Prasad Hegde and Lavinia Rognone

Global Finance Journal, 2024, vol. 63, issue C

Abstract: We extend the burgeoning literature on climate finance by examining the informational role of mutual fund sustainability ratings on the asset allocation decisions by investors when faced with climate risks. Utilizing data on a large sample of equity mutual funds in Australasia (Australia and New Zealand), we find that climate risk plays a significant role on the sensitivity of fund flows to past performance. We find that the sensitivity is stronger for mutual funds that enjoy high sustainability ratings, and we show that the informational value of past performance over subsequent fund flows becomes more important when investors face greater climate risks. We argue that sustainability ratings of managed funds not only complement performance but also help improve the efficiency of asset allocation decisions, more so during a heightened climate risk environment.

Keywords: Climate risk; ESG; Fund flow-performance sensitivity; Australasia funds (search for similar items in EconPapers)
JEL-codes: D82 D83 G11 G23 G24 Q54 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028324001133
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:63:y:2024:i:c:s1044028324001133

DOI: 10.1016/j.gfj.2024.101041

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().