Personal Convictions and ESG Investing

Abstract

We study whether fund managers’ personal convictions regarding environmental causes relate to their investment decisions and performance, using vehicle purchases and charitable donations as proxies for managers’ convictions. We find that environmentally committed managers hold more of their portfolios in green stocks and perform significantly better among those holdings. This outperformance can be explained by superior characteristic selectivity, higher active share, and avoidance of large negative returns in green stocks. As such, environmentally committed mutual fund investors could consider managers’ personal convictions in addition to conventional fund-level environmental measures (e.g. disclosures, prior holdings, etc.) in selecting funds.

Keywords: ESG; Mutual Funds; Portfolio Choice; Fund Performance; Personal Convictions

JEL Classification: G11, G41