Commitment to Responsible Investing and Mutual Fund Performance - Evidence from China

Abstract

We study the impact of fund-families committing to the United Nations Principles for Responsible Investment on mutual fund performance in China. First, we find consistent evidence that the funds coming from signatory fund-families outperform peers from comparable non-signatory fund-families, and that such an effect is stronger for the ESG funds than for the non-ESG funds. Second, we conjecture that facing the opaque ESG-information environment, signatory fund-families may need to rely on the information collected through private channels to fulfill their commitments. Using a unique dataset of information acquisition activities, we show that signatory fund-families conduct more selective access events than the comparable non-signatories, and that the subsequent increase in the stock holding of the event firms is larger for the signatory funds than for the non-signatory funds. Third, we show that the performance of funds’ positions in the stocks of the event firms exceeds that of the positions in the stocks of the non-event firms in the same industry. The results indicate that the outperformance of signatory funds is associated with higher information acquisition activism of their fund-families that brings information advantages over other market participants. The study draws attention to the issue of promoting information transparency and in particular ESG disclosures.