What is it about?
Given the rising trend of sustainable investing over the recent years, we examine how ESG ratings affect the performance, performance persistence and flow of new money European equity mutual funds have experienced for the period from 2010 to 2022.
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Why is it important?
-We investigate the effect of ESG scoring on performance, performance persistence and flow-performance relationship across European ESG equity mutual fund industry. -Low-rated ESG funds outperform high-rated ones for the overall sample period, whereas they both underperformed passive benchmarks during the coronavirus pandemic. -Low-rated (high-rated) ESG funds exhibit stronger persistence in positive (negative) returns. -The ‘flight-to-quality’ effect is observed during the spread of the COVID-19 pandemic. -Investors’ preference for high sustainable funds shows that drawing utility from non-performance attributes remains a priority to them.
Perspectives
Results show that low-rated ESG funds display better performance, stronger positive performance persistence and weaker flow-performance relationship. During the COVID-19 pandemic, investors became risk-averse, withdrawing from low-rated ESG funds despite their prior superior performance. Contrariwise, investors’ preference for funds that incorporate sustainable assets to a great extent denotes that sustainability is perceived by investors as a necessity.
Dr Spyros Papathanasiou
National and Kapodistrian University of Athens
Read the Original
This page is a summary of: Sustainability ratings and fund performance: New evidence from European ESG equity mutual funds, Finance Research Letters, April 2024, Elsevier,
DOI: 10.1016/j.frl.2024.105095.
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