Firm-Level ESG Information and Active Fund Management

Using a novel dataset with daily firm-level ESG information, we examine whether and how active mutual fund managers integrate ESG information into their portfolio decisions. Our results show that managers actively trade on ESG information, leading to improved portfolio performance. This enhanced risk-adjusted return is attributed to the incorporation of ESG information into asset prices rather than to price pressure on green assets. Additionally, fund managers adjust their portfolios to cater to investor demand, especially during periods of heightened ESG awareness. Further, funds located in Democratic states and those with higher ESG ratings exhibit a stronger inclination towards ESG integration.

Keywords: ESG integration; sustainable investing; mutual funds; investment skill; catering.

JEL Classification: G11, G23

Suggested Citation: Suggested Citation

Chen, Linquan and Chen, Yao and Kumar, Alok and Leung, Woon Sau, Firm-Level ESG Information and Active Fund Management (October 1, 2022). University of Miami Business School Research Paper No. 3747085, Journal of Financial Intermediation, 2024[10.1016/j.jfi.2024.101122], Available at SSRN: https://ssrn.com/abstract=3747085 or http://dx.doi.org/10.1016/j.jfi.2024.101122