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Market-Implied Sustainability: Insights from Funds' Portfolio Holdings

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Listed:
  • Rosella Giacometti
  • Gabriele Torri
  • Marco Bonomelli
  • Davide Lauria

Abstract

In this work, we aim to develop a market-implied sustainability score for companies, based on the extent to which a stock is over- or under-represented in sustainable funds compared to traditional ones. To identify sustainable funds, we rely on the Sustainable Finance Disclosure Regulation (SFDR), a European framework designed to clearly categorize investment funds into different classes according to their commitment to sustainability. In our analysis, we classify as sustainable those funds categorized as Article 9 - also known as "dark green" - and compare them to funds categorized as Article 8 or Article 6. We compute an SFDR Market-Implied Sustainability (SMIS) score for a large set of European companies. We then conduct an econometric analysis to identify the factors influencing SMIS and compare them with state-of-the-art ESG (Environmental, Social, and Governance) scores provided by Refinitiv. Finally, we assess the realized risk-adjusted performance of stocks using portfolio-tilting strategies. Our results show that SMIS scores deviate substantially from traditional ESG scores and that, over the period 2010-2023, companies with high SMIS have been associated with significant financial outperformance.

Suggested Citation

  • Rosella Giacometti & Gabriele Torri & Marco Bonomelli & Davide Lauria, 2025. "Market-Implied Sustainability: Insights from Funds' Portfolio Holdings," Papers 2510.20434, arXiv.org.
    • Handle: RePEc:arx:papers:2510.20434
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    References listed on IDEAS

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