Environmental Innovation and the Performance of Healthcare Mutual Funds Under Economic Stress

Modern healthcare generates significant amounts of greenhouse gas emissions and waste, which pollute the global environment and damage human health. Healthcare firms could reduce these environmental emissions and waste by developing environmentally friendly technologies and production processes. However, the implementation of green innovations requires significant investments. Healthcare equity mutual funds could provide them financial resources whether this allows fund managers to comply with their fiduciary duties. Previous literature has examined the financial performance of healthcare mutual funds without considering the environmental practices that investees adopt. To understand this issue, we examined the effect of investees’ environmental business practices on healthcare fund financial performance by considering different states of the economy. To this end, we obtained a sample of 148 global healthcare equity mutual funds from December 2015 to December 2022. Adopting the Fama–French model, our findings indicate that mutual funds improve financial performance when investee firms are in the initial phase of greening their processes and activities. However, the mutual funds invested in healthcare firms with advanced environmental practices achieve risk-adjusted returns similar to those invested in healthcare firms that implement conventional business management strategies. Furthermore, the financial performance of healthcare mutual funds is not significantly affected by the COVID-19 pandemic crisis at the aggregate level. Therefore, adopting environmental practices in the healthcare sector will not result in a loss of investor wealth from 2016 to 2022.