Are ethical and green investment funds more resilient?
Laura-Dona Capotă,
Margherita Giuzio,
Sujit Kapadia and
Dilyara Salakhova
No 2747, Working Paper Series from European Central Bank
Abstract:
Funds with an environmental, social and corporate governance (ESG) mandate have been growing rapidly in recent years and received inflows also during periods of market turmoil, such as March 2020, in contrast to their non-ESG peers. This paper investigates whether investors in ESG funds react differently to past negative performance, making these funds less sensitive to short-term changes in returns. In the absence of an ESG-label, we define an ESG- or Environmentally-focused fund if its name contains relevant words. The results show that ESG/E equity and corporate bond funds exhibit a weaker flow-performance relationship compared to traditional funds in 2016-2020. This finding may reflect the longer-term investment horizon of ESG investors and their expectation of better risk-adjusted performance from ESG funds in the future. We also explore how the results vary across institutional and retail investors and how they depend on the liquidity of funds’ assets and wider market conditions. A weaker flow-performance relationship allows funds to provide a stable source of financing to the green transition and may reduce risks for financial stability, particularly during turmoil episodes. JEL Classification: G11, G23, Q56, C58
Keywords: climate risk; green finance; investment funds; sustainable investments (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-env
Note: 3546207
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2747~1b6db3db8d.en.pdf (application/pdf)
Related works:
Chapter: Are ethical and green investment funds more resilient? (2022) 
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:ecb:ecbwps:20222747
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().