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Sustainability ratings and fund performance: New evidence from European ESG equity mutual funds

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  • Papathanasiou, Spyros
  • Koutsokostas, Drosos

Abstract

Given the rising trend of sustainable investing over the recent years, we examine how ESG ratings affect the performance, performance persistence and flow of new money European equity mutual funds have experienced for the period from January 1, 2010 to December 31, 2022. Results show that low-rated ESG funds display better performance, stronger positive performance persistence and weaker flow-performance relationship. During the COVID-19 pandemic, investors became risk-averse, withdrawing from low-rated ESG funds despite their prior superior performance. Contrariwise, investors’ preference for funds that incorporate sustainable assets to a great extent denotes that sustainability is perceived by investors as a necessity.

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  • Papathanasiou, Spyros & Koutsokostas, Drosos, 2024. "Sustainability ratings and fund performance: New evidence from European ESG equity mutual funds," Finance Research Letters, Elsevier, vol. 62(PA).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324001259
    DOI: 10.1016/j.frl.2024.105095
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    Cited by:

    1. Pan, Zhijie & Zheng, Yanting & Xu, Dandan & Wang, Ting, 2024. "How green screening influences risk transmission among stock-bond indices: Insight into the dependence structure," Finance Research Letters, Elsevier, vol. 69(PA).
    2. Yang, Zhonghai & Song, Pingting & Xu, Meng & Li, Yingmei, 2024. "Environmental, social and governance performance and equity mispricing: Does embedded information mediation matter?," Finance Research Letters, Elsevier, vol. 67(PB).
    3. Zhang, Ping & Lv, Zi-Xu, 2024. "Is style drift informative? Evidence from mutual funds in China," Finance Research Letters, Elsevier, vol. 67(PA).
    4. Chibane, Messaoud & Joubrel, Mathieu, 2024. "The ESG-efficient frontier under ESG rating uncertainty," Finance Research Letters, Elsevier, vol. 67(PB).

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    More about this item

    Keywords

    ESG equity mutual funds; ESG score; Performance; Performance persistence; Flow; COVID-19;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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