Do Active Fund Managers Exploit Material ESG Information?

70 Pages Posted: 29 Jan 2021 Last revised: 22 Jan 2022

See all articles by Linquan Chen

Linquan Chen

University of Exeter

Yao Chen

University of Exeter Business School

Alok Kumar

University of Miami - Miami Herbert Business School

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh

Date Written: December 11, 2020

Abstract

Using a novel dataset containing daily snapshots of firm-level material ESG information, we examine whether active mutual fund managers successfully integrate material ESG information into their portfolio decisions. We find that a typical fund manager over-weights firms with high material ESG score and improves portfolio performance. Fund managers also incorporate material ESG information to cater to investor demand, especially during periods of greater ESG awareness. In the cross-section, ESG-information-investment relation is stronger among funds with better ESG ratings and higher 12b-1 fees. Further, funds located in Democratic states and managers who are less likely to be discriminated exhibit stronger ESG sensitivity.

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

JEL Classification: G11, G23, G41

Suggested Citation

Chen, Linquan and Chen, Yao and Kumar, Alok and Leung, Woon Sau, Do Active Fund Managers Exploit Material ESG Information? (December 11, 2020). University of Miami Business School Research Paper No. 3747085, Available at SSRN: https://ssrn.com/abstract=3747085 or http://dx.doi.org/10.2139/ssrn.3747085

Linquan Chen

University of Exeter ( email )

Streatham Court
Exeter, EX4 4ST
United Kingdom
7749606688 (Phone)
7749606688 (Fax)

Yao Chen (Contact Author)

University of Exeter Business School ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

512B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

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