The Costs of Being Sustainable

49 Pages Posted: 18 Feb 2024 Last revised: 19 Nov 2024

See all articles by Emanuele Chini

Emanuele Chini

Universite du Luxembourg - Department of Finance

Roman Kräussl

Bayes Business School (formerly Cass); Hoover Institution, Stanford University; Centre for Economic Policy Research (CEPR)

Denitsa Stefanova

Universite du Luxembourg

Date Written: February 1, 2024

Abstract

We assess the sustainability footprint of mutual funds through the holdings they have. Rather than relying on ESG metrics, we define the sustainability of a company by its average impact (either positive, or negative) on the 17 UN’s Sustainable Development Goals (SDGs). We document that funds aligned with SDGs attract inflows only if they also have a sustainability mandate. For funds without a clear sustainability mandate, the relationship is opposite: those that are more aligned with SDGs, attract fewer flows. When we decompose scores in their positive and negative component, we find that it is mainly the negative component that drives our results. This suggests that, despite investors’ preference for sustainable funds, investors limit their actions to excluding funds that are negatively aligned with SDGs rather than increasing capital inflows towards funds that are positively aligned. Our findings indicate that investors divest from non sustainable funds into “neutral” funds, instead of contributing to advancing SDGs.

Keywords: sustainable development goals, sustainable investing, mutual funds, investor preferences

JEL Classification: G11, G23, Q56

Suggested Citation

Chini, Emanuele and Kraeussl, Roman and Stefanova, Denitsa, The Costs of Being Sustainable (February 1, 2024). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2024, Available at SSRN: https://ssrn.com/abstract=4714203 or http://dx.doi.org/10.2139/ssrn.4714203

Emanuele Chini (Contact Author)

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg

Roman Kraeussl

Bayes Business School (formerly Cass) ( email )

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Denitsa Stefanova

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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