Social responsible mutual funds and lowcarbon economy

Amparo Soler-Domínguez (adomingu@uji.es), Juan Carlos Matallín-Sáez (matallin@uji.es), Diego Víctor de Mingo-López (demingo@uji.es) and Emili Tortosa-Ausina
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Amparo Soler-Domínguez: Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain
Juan Carlos Matallín-Sáez: Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain
Diego Víctor de Mingo-López: Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain

No 2020/15, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: Sustainable investment responds to claims for carbon and climate-neutral societies. To addresses the urgency around climate change and provide more qualified information to investors, Morningstar has developed the Low Carbon Designation (LCD), an indicator that the companies held in a portfolio are in general alignment with the transition to a low-carbon economy. It is assigned to portfolios that have low carbon-risk and fossil-fuel exposure scores. This study takes this a step further by examining the relationship between these scores and financial performance. With this aim, we analyze 3,920 socially responsible mutual funds in the world. Results show differences in financial performance, according scores and investment areas. We find evidence that funds characterized with higher levels of sustainability achieved better performance than funds more exposed to carbon and fossil fuel involved companies. Therefore we provide insights on the informativeness of these new scores for fund selection by investors, for a fairer comparison between socially responsible and conventional funds -since that sustainability improves performance- and for developing low carbon economies.

Keywords: environmental; low-carbon; mutual fund; performance; sustainability (search for similar items in EconPapers)
JEL-codes: G11 G17 G2 G23 N20 Q56 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020
New Economics Papers: this item is included in nep-ene and nep-env
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