Low Carbon Mutual Funds
Journal
Review of Finance
ISSN
1572-3097
Type
journal article
Date Issued
2023-04-04
Author(s)
Abstract
Climate change poses new challenges for portfolio management. In our not-yet-low carbon world, investors face a trade-off between minimizing their exposure to climate risks and maximizing the benefits of portfolio diversification. This paper investigates how investors and financial intermediaries navigate this trade-off. After the release of Morningstar's novel carbon risk metrics in April 2018, mutual funds labeled as ``low carbon'' experienced a significant increase in investor demand, especially those with high risk-adjusted returns. Fund managers actively reduced their exposure to firms with high carbon risk scores, especially stocks with returns that correlated more with the funds' portfolios and were thus less useful for diversification. These findings shed light on whether and how climate-related information can re-orient capital flows in a low carbon direction.
Language
English
Keywords
Behavioral finance
climate change
eco-labels
investor preferences
mutual funds
sustainable finance
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Oxford
Volume
28
Number
1
Start page
45
End page
74
Contact Email Address
stefano.ramelli@unisg.ch
Eprints ID
269871
File(s)![Thumbnail Image]()
Name
LowCarbonMutualFunds_CeccarelliRamelliWagner_RoF_2023.pdf
Size
1.3 MB
Format
Adobe PDF
Checksum (MD5)
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