ESG Investment Funds: A Chance to Reduce Systemic Risk

By R. Cerqueti, R. Ciciretti, Ambrogio Dalò, Marco Nicolosi. Social Science Research Network, 2020

156 citations recorded by the source corpus.

We consider a network of equity mutual funds characterized by different levels of compliance with Environmental, Social, and Governance (ESG) aspects. We measure the impact of portfolio liquidation in a stress scenario on funds with different ESG rates. Fire sales spillover from portfolio liquidation propagates from one fund to another because of indirect contagion mediated by common asset holdings. We find that the vulnerability of funds to contagion decreases with the level of ESG compliance. Contagion is less effective for higher ranked funds than for lower ranked ones. In particular, for different levels of portfolio liquidation, the relative market value loss of the highest ESG ranked funds is lower than the loss experienced by the lowest ESG ranked counterpart.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/b92c9a35160bd52a1fb93d1e56f6311874bc7a6d

Citations in the corpus

• Past, present, and future of sustainable finance: insights from big data analytics through machine learning of scholarly research (2022, unknown): “…of socially responsible funds over traditional funds (Pedersen et al., 2020), higher market-to-book ratios and higher return on assets for socially responsible investors (Dam & Scholtens, 2015), and an opportunity to reduce systematic risk for investors (Cerqueti, 2021; Behl et al., 2021).”