Carbon-intensive industries in Socially Responsible mutual funds' portfolios

In this research, I study the exposure of Socially Responsible mutual funds (SR) to black industries (i.e., carbon-intensive sectors: fossil fuel, metal and utilities) and its effect on the financial performance. To this purpose, I analyze the industry portfolio allocation of a sample of 136 actively-managed US SR mutual funds, investing in domestic and global equity, in the period January 2012-December 2018. I observe that the average weight of black industries in these portfolios is 9.51% falling over time (13.45% in 2012 versus 7.40% in 2018). Another finding is that a greater exposure to fossil fuel and metal industries negatively impacts the portfolios' financial performance. In addition, SR funds managed by firms located in Republican-leaning states and in states with greater CO2 emissions per capita, are more exposed to carbon-intensive industries, suggesting that SR funds' managers could be influenced by local factors when making their investment decisions. Finally, I observe that SR funds marketed under low-carbon labels live up to their name and are less exposed to fossil fuel and metal industries than other types of SR funds.

Automated summary

The research found that the exposure of SR funds to carbon-intensive black industries has decreased over time, with excessive exposure to fossil fuel and metal industries negatively impacting the funds' financial performance. Additionally, SR funds managed by firms located in Republican-leaning states and states with high CO2 emissions per capita are more exposed to carbon-intensive industries, while SR funds marketed under low-carbon labels perform better by being less exposed to fossil fuel and metal industries.