ESG investment preference and fund vulnerability

It has been extensively demonstrated that ESG investment has an impact on funds, but whether and how ESG investment affects fund vulnerability is still an important topic to be explored. Herein, the micro data of fund holdings of stocks and bonds and firm ESG performance are used to measure the ESG performance and vulnerability of funds and investigate the relation between the ESG preference of fund investment and fund vulnerability. The findings demonstrate that the better ESG performance of funds significantly reduces their vulnerability. Besides, we verify how the ESG performance of funds affects their vulnerability through two channels, i.e., the investor attention channel and the fundamental channel, and find that the better ESG performance of funds increases portfolio liquidity and weakens the performance-flow relationship, thus reducing the impact of the flows of related funds1 on them and reducing their vulnerability. In addition, we also find that lower network centrality, stronger liquidity timing ability, and the proposal of the dual carbon goals strengthen the negative impact of the ESG performance of funds on their vulnerability.

Automated summary

The study finds that better ESG performance of funds reduces their vulnerability. The impact of ESG performance on vulnerability is mediated through investor attention channel and fundamental channel. Lower network centrality, stronger liquidity timing ability, and the proposal of dual carbon goals enhance the negative impact of ESG performance on vulnerability.