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Looking at socially responsible investment strategies through the lenses of the global ETF industry

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  • Fiordelisi, Franco
  • Galloppo, Giuseppe
  • Lattanzio, Gabriele
  • Paimanova, Viktoriia

Abstract

Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crises. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Suggested Citation

  • Fiordelisi, Franco & Galloppo, Giuseppe & Lattanzio, Gabriele & Paimanova, Viktoriia, 2023. "Looking at socially responsible investment strategies through the lenses of the global ETF industry," Journal of International Money and Finance, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623001183
    DOI: 10.1016/j.jimonfin.2023.102917
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    More about this item

    Keywords

    Sustainable Investments; Climate Change; Natural Disasters; ETF;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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