Do Active Fund Managers Exploit Material ESG Information?
70 Pages Posted: 29 Jan 2021 Last revised: 22 Jan 2022
Date Written: December 11, 2020
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: Suggested Citation