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Special Issue: The Future of Measuring Environmental Risk and Opportunity in Investment Portfolios

Do greener funds perform better? An analysis of open-end equity funds in China

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Pages 387-405 | Received 07 Sep 2020, Accepted 27 Jul 2021, Published online: 23 Aug 2021
 

ABSTRACT

This study analyses how equity funds react to institutional pressure related to green finance. Based on the analysis of 378 open-end equity funds in China from 2010 to 2019, we examined the environmental performance of fund holdings to measure their level of green investment. In our analyses, we distinguished between funds with positive and negative screening strategies. Our results indicate that the funds’ green investments are gradually increasing. Furthermore, we found that green investment strategies help to increase the funds’ excess return. The positive connection to financial returns, however, is only valid for funds with negative screening strategies. Finally, we found that fund investors react negatively to funds using positive screening to identify green investments. The study contributes to theoretical and practical knowledge about factors influencing equity funds’ green and financial performance.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 We used Stata software to calculate the regressions. The command line is “ reg R_(j,t)-R_(f,t) R_t^MKT-R_(f,t) R_t^SMB R_t^HML R_t^MOM ”. For all the funds in our sample, we calculated Alpha for each fund annually by using the command “ statsby _cons, by(fundid year) saving(statsbyresults.dta, replace): reg R_(j,t)-R_(f,t) R_t^MKT-R_(f,t) R_t^SMB R_t^HML R_t^(MOM )”. The Alphas, can be found in the dta file “statsbyresults”.

Additional information

Funding

This work was supported by the 2021 project of Guangzhou Planing of Philosophy and Social science “Research on Promoting the Reform of Factor Market-Based Allocation in Guangzhou: Taking the Integration of Green Finance and Green Innovation as an example” [grant number 2021GZQN05].

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