Firm-Level ESG Information and Active Fund Management

Abstract

Using a novel dataset containing daily snapshots of firm-level ESG information, we examine whether active mutual fund managers successfully integrate ESG information into their portfolio decisions. We find that a typical fund manager executes buy trades following positive ESG information and improves portfolio performance. Fund managers also incorporate 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. And funds located in Democratic states and managers with lower job-related discrimination propensity exhibit stronger ESG sensitivity.

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

JEL Classification: G11, G23