Low-carbon mutual funds

Low-carbon mutual funds

Marco Ceccarelli, Stefano Ramelli, Alexander Wagner

Series number :

Serial Number: 
659/2020

Date posted :

March 19 2020

Last revised :

March 19 2020
SSRN Share

Keywords

  • Behavioral Finance • 
  • climate change • 
  • eco-labels • 
  • investor preferences • 
  • mutual funds • 
  • Sustainable Finance

We show that mutual funds compete for climate-conscious investment flows. In April 2018, Morningstar introduced a climate-focused label for mutual funds. The release of the “Low Carbon Designation” induced reactions on both the demand and supply sides of the market. First, investors flocked to funds receiving this eco-label.

Second, active funds that missed the label at its initial release responded to the new incentive by shifting their holdings towards more climate-friendly firms. In sum, climate-related information can trigger competition by financial intermediaries along their climate performance. However, the resulting portfolio shifts may also expose investors to higher idiosyncratic risks.
 

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Authors

Real name:
Marco Ceccarelli
Real name:
Stefano Ramelli