Low-Carbon Mutual Funds

59 Pages Posted: 27 Mar 2019 Last revised: 6 May 2020

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: March 2019

Abstract

We show that mutual funds compete for climate-conscious investment flows. In April 2018, Morningstar introduced a climate-focused label for mutual funds. The release of the "Low Carbon Designation" induced reactions on both the demand and supply sides of the market. First, investors flocked to funds receiving this eco-label. Second, active funds that missed the label at its initial release responded to the new incentive by shifting their holdings towards more climate-friendly firms. In sum, climate-related information can trigger competition by financial intermediaries along their climate performance. However, the resulting portfolio shifts may also expose investors to higher idiosyncratic risks.

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., Low-Carbon Mutual Funds (March 2019). CEPR Discussion Paper No. DP13599, Available at SSRN: https://ssrn.com/abstract=3360066

Marco Ceccarelli (Contact Author)

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

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

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

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