Looking at socially responsible investment strategies through the lenses of the global ETF industry

Fiordelisi F. Galloppo G. Lattanzio G. Paimanova V.
October 2023 Elsevier Ltd

Journal of International Money and Finance
2023 #137

Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crises. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Climate Change , ETF , Natural Disasters , Sustainable Investments

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Essex Business School, University of Essex, Wivenhoe Park, Colchester, CO4 3SQ, United Kingdom
Department of Economics and Business, University of Viterbo La Tuscia, Via del Paradiso 47, Viterbo, 01100, Italy
Nazarbayev University, Graduate School of Business, Qabanbay Batyr 53, Astana, 010000, Kazakhstan
Department of Management, University of Rome Tor Vergata, Via Columbia 2, Rome, Italy

Essex Business School
Department of Economics and Business
Nazarbayev University
Department of Management

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