ESG Investment Funds: A Chance to Reduce Systemic Risk

We consider a network of equity mutual funds characterized by different levels of compliance with Environmental, Social, and Governance (ESG) aspects. We measure the impact of portfolio liquidation in a stress scenario on funds with different ESG rates. Fire sales spillover from portfolio liquidation propagates from one fund to another because of indirect contagion mediated by common asset holdings. We find that the vulnerability of funds to contagion decreases with the level of ESG compliance. Contagion is less effective for higher ranked funds than for lower ranked ones. In particular, for different levels of portfolio liquidation, the relative market value loss of the highest ESG ranked funds is lower than the loss experienced by the lowest ESG ranked counterpart.

• Publication year

  2020

• Venue

  Social Science Research Network

• Publication date

  2020-06-19

• Fields of study

  Business, Economics, Environmental Science

• Identifiers
  DOI 10.2139/ssrn.3631205
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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