Does responsible investing pay during economic downturns: Evidence from the COVID-19 pandemic

How reactive is investment in US green bonds and ESG-eligible stocks in times of crisis? Exploring the COVID-19 crisis

This study examines how green bonds and environmental, social and governance (ESG) stock market returns have reacted to the COVID-19 crisis in the US. Unlike the Standard and Poor's (S&P) 500 index, the response of green bonds and ESG markets to pandemic progress is nonlinear: A low (large) level of confirmed new cases of COVID-19 has a positive (negative) impact. Furthermore, the implemented containment policies (stringency measures and vaccination campaigns) are positively valued, but their simultaneous use is perceived by investors as a bad signal. Overall, our findings question the resilience of investments in green bonds and ESG markets.

Are sustainable investments interdependent? The international evidence

The rising concerns about climate change and environmental degradation have urged various stakeholder to focus on sustainable investments that are facing a drag from the Covid-19 pandemic. Since environmental and Covid-19 challenges are global, it is critical to assess the interlinkages of sustainable investments. In this research, we employ the dependence, centrality, and dynamic network approach to examine the interdependence and its determinants across multiple countries between January 2009 and March 2021. The findings indicate France as the lead risk transmitter while Japan and Taiwan show risk reception among international markets. We observe an increase in dependence during economic turmoil notably in Covid-19 episode. The centrality network revealed the prominent significance of sustainable investments in the European countries that can be attributed to their exceptional efforts to combat the climate change. Finally, our results suggest that the volatility in gold prices is the key driver of interdependence of sustainable investments.

Sustainable mutual fund performance and flow in the recent years through the COVID-19 pandemic

Sustainable investing has gained significant momentum over the past few years. In this paper, we study the performance and flows of sustainable equity mutual funds in recent years through the COVID-19 pandemic. We find that the high-sustainable funds perform better than the low-sustainable ones by between 1.32% and 6.96% annually. This outperformance significantly increases during the COVID-19 pandemic-induced market crash and the post-crash pandemic. Similarly, we find that high-sustainable funds attract significantly more investments (or suffer less outflow) than the low-sustainable funds by between 5.28% and 5.76% per annum. These flow differences increase considerably during the market crash, consistent with the 'flight-to-quality' effect. We also find that the high-sustainable funds attract significantly more investment during the post-crash pandemic than before the crash. This suggests that investors consider sustainable investing a necessity (not a luxury good), and their taste/attitude towards sustainable investing has changed - now they prioritize 'investing with a conscience.'

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.

The diversifying role of socially responsible investments during the COVID-19 crisis: A risk management and portfolio performance analysis

This paper examines the diversification role of socially responsible investments (SRI) during the COVID-19 pandemic. To assess the contribution to risk diversification and improved financial performance of SRI we analyze the effect of including clean energy equities in portfolios of conventional equities and other assets commonly considered as safe havens. We construct minimum variance portfolios for different rebalancing frequencies and by considering or restricting short positions. Two approaches are applied: AR-GARCH models to fit the marginal distributions of individual assets and DCC skew Student copula specifications to model the conditional dependencies among pairs via the Kendall's tau correlation measure. We provide evidence of the important role that SRI have played in diversifying and improving the financial performance of portfolios based on different securities such as traditional equities, Treasury bonds, gold, crude oil and Bitcoin.

The Impact of COVID-19 on Investors’ Investment Intention of Sustainability-Related Investment: Evidence from China

This paper investigates how investors respond to the COVID-19 pandemic, particularly regarding their intention to invest in sustainability-related investment (SRI) funds. We conduct two experiments online with participants who have experience with stock and fund investments. The first one includes 292 participants, which aims to explore investors’ attitudes and investment intention of different sustainability-related components, and the second one includes 432 participants, which aims to examine how the COVID-19 pandemic affects individuals’ attitudes and investment intention. Our results show that investors tend to invest in SRI funds when the threat of the COVID-19 pandemic is salient. Specifically, we find that although investors perceive environmental issues to be more important than economic and social issues, their investment intention of economic-focused SRI funds significantly increases in response to the COVID-19 pandemic threat. These findings suggest that fund managers can focus on particular types of investors when designing SRI funds, such as active investors with a preference for technical analysis and young female investors with a high level of income and education.

Mitigating Contagion Risk by ESG Investing

We study whether ESG investing may mitigate the risk of contagion among equity mutual funds. More precisely, we measure the impact of fire-sale spillover, propagating throughout the financial system, on funds ranked on ESG aspects. We compare the relative loss of capitalization experienced by high- and low-ranked funds. Contagion, which is indirect since funds are not exposed to counterparty risk, is modeled using a network structure. In cases of deleveraging from funds, fire-sale spillover propagates throughout the network because of common asset holdings among funds. We find that funds’ vulnerability to contagion decreases when the level of ESG compliance increases. Moreover, the average relative loss is lower for the high-ranked funds than for the low-ranked ones. The small-size funds mainly drive the result. Our findings indicate that contagion is less effective for high-ranked funds. From a macroeconomic perspective, ESG investing represents a new opportunity for diversification that makes the system more resilient to contagion.