When Investors Call for Climate Responsibility, How Do Mutual Funds Respond?

65 Pages Posted: 15 Mar 2019 Last revised: 14 Aug 2019

See all articles by Marco Ceccarelli

Marco Ceccarelli

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Stefano Ramelli

University of Zurich - Department of Banking and Finance

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2019

Abstract

This paper provides evidence that the release of climate-related information can contribute to a "greening" of financial flows. We exploit the introduction in April 2018 of an eco-label for mutual funds, the Low Carbon Designation (LCD), by the investment platform Morningstar. The release of this label induced responses by (1) investors and (2) mutual funds. First, investors flocked to funds labeled as Low Carbon. Through the end of 2018, such funds enjoyed a 2% increase in assets compared to otherwise similar funds. Second, managers of active funds that missed the label at its initial release shifted their holdings to more climate-friendly firms, in the attempt of obtaining the designation in subsequent updates. Overall, the findings indicate that financial intermediaries actively compete for flows driven by the increasing demand for climate-conscious investment products.

Keywords: behavioral finance, climate change, eco-labels, investor preferences, mutual funds, sustainable finance

JEL Classification: D03, G02, G12, G23

Suggested Citation

Ceccarelli, Marco and Ramelli, Stefano and Wagner, Alexander F., When Investors Call for Climate Responsibility, How Do Mutual Funds Respond? (August 13, 2019). Swiss Finance Institute Research Paper No. 19-13. Available at SSRN: https://ssrn.com/abstract=3353239 or http://dx.doi.org/10.2139/ssrn.3353239

Marco Ceccarelli

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

HOME PAGE: http://sites.google.com/view/marcoceccarelli

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Stefano Ramelli

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41446342953 (Phone)

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

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