How can Socially Responsible Investment Labels be more Relevant? An Analysis of a Multi-Grade Labelling Scheme for Sustainable Mutual Funds

Yves Rannou, Mohamed Boutabba and Mathieu Mercadier
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Yves Rannou: ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand, CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne
Mohamed Boutabba: LERN - Laboratoire d'Economie Rouen Normandie - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université
Mathieu Mercadier: DCU - Dublin City University [Dublin]

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Abstract: This paper provides the first experiment of a multi-grade labelling scheme within the European Socially Responsible Investment (SRI) market. Specifically, we develop an innovative fuzzy c-means clustering approach to group SRI funds according to their green performance. Our central result shows that a four-grade labelling scheme allows to adequately capture the heterogeneity of funds' green performance. Importantly, we find that adopting this scheme allows investors to perceive the green performance of SRI funds as a reliable signal of their future financial performance. Moreover, we report an indirect flow effect due to environmental sustainability since the positive association of SRI funds' green performance with flows is driven by expenses, financial performance and risk considerations of investors. Provided that this scheme provides two consistent signals on green and financial performance of SRI funds, it increases the relevance of SRI labels for both investors and fund managers in Europe, where label proliferation conduces to divergent signals on sustainability.

Keywords: fuzzy c-means clustering; green performance; multi-grade; label; Socially Responsible Investment (search for similar items in EconPapers)
Date: 2024-11-29
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Published in Sustainable Financial Innovation Centre (SFiC) Annual Conference, The University of Birmingham, Nov 2024, DUBAI, United Arab Emirates

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05307476

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