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Low carbon transition risk in mutual fund portfolios: Managerial involvement and performance effects

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  • Juan C. Reboredo
  • Luis A. Otero González

Abstract

Transitioning to a low‐carbon economy to mitigate the effects of climate change involves risks. We investigate the effects of managerial ownership and management on the low carbon transition risk of mutual fund portfolios and the effects of low carbon transition risk on mutual fund performance and flows. Using low carbon transition risk ratings based on the unmanaged carbon risk of the companies included in fund portfolios, we find that managerial ownership and the socially responsible focus of the fund reduce fund portfolio exposure to carbon risk, whereas active management has the opposite effect. Furthermore, we find that funds with low carbon transition risk produce a better risk‐adjusted performance are more sensitive to tail risks and exhibit a better fund flow performance.

Suggested Citation

  • Juan C. Reboredo & Luis A. Otero González, 2022. "Low carbon transition risk in mutual fund portfolios: Managerial involvement and performance effects," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 950-968, March.
    • Handle: RePEc:bla:bstrat:v:31:y:2022:i:3:p:950-968
    DOI: 10.1002/bse.2928
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    2. Yevheniia Antoniuk, 2023. "The effect of climate disclosure on stock market performance: Evidence from Norway," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(2), pages 1008-1026, April.

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