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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Low carbon mutual funds
Organization Unit
  • Marco Ceccarelli
  • Stefano Ramelli
  • Alexander Wagner
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title Review of Finance
Publisher Oxford University Press
Geographical Reach international
ISSN 1572-3097
Volume 28
Number 1
Page Range 45 - 74
Date 2024
Abstract Text Climate change poses new challenges for portfolio management. In our not-yet-low carbon world, investors face a trade-off between minimizing their exposure to climate risks and maximizing the benefits of portfolio diversification. This paper investigates how investors and financial intermediaries navigate this trade-off. After the release of Morningstar's novel carbon risk metrics in April 2018, mutual funds labeled as "low carbon" experienced a significant increase in investor demand, especially those with high risk-adjusted returns. Fund managers actively reduced their exposure to firms with high carbon risk scores, especially stocks with returns that correlated more with the funds' portfolios and were thus less useful for diversification. These findings shed light on whether and how climate-related information can re-orient capital flows in a low carbon direction.
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Digital Object Identifier 10.1093/rof/rfad015
Other Identification Number merlin-id:23538
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