The impact of mutual funds' ESG scores on their financial performance during the COVID-19 pandemic. A data envelopment analysis

Purpose: The purpose of this study is to evaluate the performance of mutual funds during the COVID-19 pandemic with environmental, social and governance (ESG) criteria. The main research question is whether mutual fund performance differs with respect to the level of the mutual fund's ESG score. Design/methodology/approach: The data set contains global fund data, and mutual fund performance is analyzed using two types of data envelopment analysis (DEA) models: the DEA portfolio index (DPEI) and the range direction measure (RDM) DEA. Propensity score matching and logistic regression are also applied. Findings: The results reveal that: nonequity mutual funds present significantly higher performance compared to the performance of equity mutual funds;mutual funds with high ESG scores are associated with significantly higher performance compared to those with low to medium ESG scores;funds with high ESG scores experience higher performance irrespective of their type;and efficiency scores derived from the RDM DEA are significantly higher than those derived from the DPEI model. Research limitations/implications: Investors, fund managers and market participants can benefit from the findings of this study and improve their investment decision-making process, including more sustainable funds in their portfolios. Regulators and policymakers should further promote or even require the inclusion of more sustainable investments in the financial products offered by institutional investors. The main limitation of the study is related to data availability regarding the ESG score of mutual funds. Originality/value: To the best of the authors' knowledge, this is the first study that provides robust evidence in support of a positive association between ESG scores and mutual fund performance during the pandemic-induced crisis applying a DEA methodology. © 2023, Emerald Publishing Limited.

Did ESG Save the Day? Evidence From India During the COVID-19 Crisis

Investors have shown increasing interest in Socially Responsible Investments (SRI) in the past few years, especially during the financial crisis caused due to the outbreak of the COVID-19 pandemic. SRI are evaluated on the basis of Environmental, Social and Governance (ESG) criteria. ESG information allows investors to assess the risks associated with a particular firm and how the firm manages or intends to manage future risks. Amidst the increasing investor interest in ESG products, we attempt to study the value addition of ESG performance to investors during crisis period. Using a sample of ESG rated firms listed on the Bombay Stock Exchange (BSE), we examine the investment performance, trading volumes and return volatility of ESG stocks in an emerging market like India during the COVID-19 crisis. The results of our event study conducted around the important events that have occurred in India during the COVID-19 pandemic provide evidence that investors can use ESG information as a signal of future stock performance. Most importantly, ESG performance provides downside protection during crisis times. Our results show that ESG performance does not prove to be detrimental to investment performance during normal times. Also, ESG performance was found to reduce stock return volatility during the COVID-19 pandemic. Overall, our study attempts to establish an investment case for ESG stocks in emerging markets in India by providing support to the good management hypothesis.

Screening activity matters: Evidence from social and governance portfolio performance from an emerging market

Socially Responsible Investments (SRI) have recently generated much interest among asset owners, managers and academicians. Though the Efficient Market Theory suggests that stock prices fully reflect all available information, few existing studies indicate that Environmental, Social and Governance (ESG) portfolios deliver superior risk-adjusted performance. ESG investing is at a nascent stage in India but is growing rapidly, especially after the COVID-19 pandemic. Asset managers always face the dilemma of choosing between different screening methods, screening intensities and stock weighting schemes to deliver outperformance. Our study attempts to investigate the impact of these portfolio construction criteria on the risk-adjusted performance of ESG portfolios in India. Our results show that there exists a trade-off between superior investment performance and unsystematic risk of ESG portfolios. Investors can benefit from investing in equally-weighted best-in-class portfolios constructed using ESG scores. We highlight the implications of our findings for asset owners, managers, index providers and regulators, and also provide directions for future research in the area of ESG portfolio management. © 2023 John Wiley & Sons Ltd.

Is ESG-ness the vaccine?

In an attempt to foster debate on whether firms' commitment to ESG policies affects stocks risk-adjusted performance, we analysed the blue-chips of the European countries most affected by COVID-19. We found statistical evidence that companies that follow high ESG standards outperformed low ESG-ranked firms during Phase 1 of COVID-19. In particular, the dampening effect on the downside stock market movement was more evident during the first part of Phase 1 characterized by the sudden crash of stock prices.

Has the risk of socially responsible investments (SRI) companies stocks changed in the COVID-19 period? International evidence.

In this study, we investigate changes in risk of socially responsible investments (SRI) companies in the periods before and during the COVID-19 pandemic relying on a broad dataset covering SRI indices from 35 markets analyzed between 2016 and 2021. Our results provide evidence that the systematic risk of the SRI firms, measured by the beta coefficient, increased in most countries around the world during the COVID-19 period. However, some markets in our sample show remarkable resilience and stability in terms of the changes in their risk patterns. In particular, the systematic risk of SRI companies from the markets in East Asia decreased during the COVID-19 pandemic, which contrasts with substantial increases in the systematic risk of the SRI firms from the SRI indices in all other regions around the world.

Did ESG Save the Day? Evidence From India During the COVID-19 Crisis

Investors have shown increasing interest in Socially Responsible Investments (SRI) in the past few years, especially during the financial crisis caused due to the outbreak of the COVID-19 pandemic. SRI are evaluated on the basis of Environmental, Social and Governance (ESG) criteria. ESG information allows investors to assess the risks associated with a particular firm and how the firm manages or intends to manage future risks. Amidst the increasing investor interest in ESG products, we attempt to study the value addition of ESG performance to investors during crisis period. Using a sample of ESG rated firms listed on the Bombay Stock Exchange (BSE), we examine the investment performance, trading volumes and return volatility of ESG stocks in an emerging market like India during the COVID-19 crisis. The results of our event study conducted around the important events that have occurred in India during the COVID-19 pandemic provide evidence that investors can use ESG information as a signal of future stock performance. Most importantly, ESG performance provides downside protection during crisis times. Our results show that ESG performance does not prove to be detrimental to investment performance during normal times. Also, ESG performance was found to reduce stock return volatility during the COVID-19 pandemic. Overall, our study attempts to establish an investment case for ESG stocks in emerging markets in India by providing support to the good management hypothesis.

Quantifying the asymmetric spillovers in sustainable investments

Owing to the growing importance of socially responsible investments in the wake of climate change mitigation goals, we estimate the asymmetric time- and frequency-spillovers between global sustainable investments. Additionally, we examine the influence of global risk factors such as US and UK economic policy uncertainties, stock market volatility, US treasury market volatility and infectious diseases related market volatility on the short- and long-run connectedness in these investments. To this end, we use daily returns and volatilities of 14 country-level Dow Jones Sustainability indices from January 2005 to March 2021. By employing the asymmetric versions of Diebold & Yilmaz (2012, 2014) and Barunik & Krehlik (2018) time-frequency connectedness, our study addresses both good and bad contagion among sustainable investments is unexplored in the recent literature. The results reveal significant time-frequency asymmetries in return spillovers across different regions in the short- and long-run. Germany, France, Netherlands, and the UK are the primary transmitters of returns and volatility shocks. We find more intra-regional connectedness among the Asian countries as opposed to inter-regional connectedness. Negative returns propagate more intensely than positive ones, and this contagion is considerably boosted during crises, including the COVID19. The VIX and COVID19 remain influential for financial contagion in the long run. The impact of MOVE is positive in the short-run while negative in the long-run, which shows an overreaction of connectedness to the US treasury market volatility in the short-run. Economic policy uncertainties in the US and the UK increase spillovers more intensely in the short-run. These results are robust to using volatility spillovers, the choice of rolling window and various forecast horizons. Our findings are distinctly important for socially responsible investors as we point out international portfolio diversification opportunities among sustainable investments. Understanding the dynamics of connectedness in sustainable investments can potentially boost financing in this market through portfolio choices and contribute to the climate change mitigation agenda of United Nations.

Pandemic Uncertainty and Socially Responsible Investments.

This paper examines the effects of pandemic uncertainty on socially responsible investments. We use the overall corporate sustainability performance index in the Global-100 Most Sustainable Corporations in the World dataset to measure socially responsible investments. The global pandemic uncertainty is also measured by the World Pandemic Uncertainty Index. We focus on the panel dataset from 2012 to 2020, and the results show that the World Pandemic Uncertainty Index is positively related to socially responsible investments. The main findings remain significant when we utilize various panel estimation techniques.