Extreme weather sees fund managers turn to green stock
Periods of abnormally high temperatures spur fund managers to pick more green stocks, research has found.
Climate Salience and the Demand for Green Stocks by Mutual Funds explored the impact of climate on investment decisions of asset managers around the world.
Teodor Dyakov, told FT Adviser fund managers that experience periods of high abnormal temperatures tend to buy more green stocks that managers that do not experience them. He co-authored the study with Dominic O’Kane.
He said: “We looked at what mutual funds are doing when environmental concerns increase. So, when there are periods of high abnormal temperatures, or mentions in the media about climate we find these environmental concerns increase.
“And mutual funds, as a group, buy more and more green stocks, and afterwards, if we look at the performance of these stocks, these green stocks that they buy, outperform the stocks that they sell.”
Dyakov, who is associate professor in finance at EDHEC Business School in Nice, said this shows mutual funds play an “important role” in translating environmental concerns into asset prices.
This is partly down to consumers buying more of the products and services of green companies when environmental concerns increase.
“The second reason happens is because when environmental concerns rise, there is a high fraction of the wealth of investors that’s directed towards green investment,” added Dyakov.
“So when concerns rise, more investors, more wealth goes towards green stocks. So in the short run, we show that in six months in our sample green stocks outperform the brown ones.”
He added the study just tracked performance over six months and the long-term outlook could be very different.
Dyakov said during his research he discovered funds “respond strongly to incentives”, risking the possibility of greenwashing.
When it comes to regulation and labelling of sustainable funds, Dyakov said he is sceptical about disclosure that is mandated.
He added: “There is a demand by clients for ESG investments and I think that funds that are actually doing this can credibly signal that to advisers by disclosing their positions, for example, how they’re trading.”
He believes advisers can work out whether funds meet clients’ sustainability expectations by looking at the holdings themselves and seeing how the funds trade.
But Dyakov acknowledged this would be an “intensive process”.
Copyright FT Adviser
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Extreme weather sees fund managers turn to green stock
In this research, which benefited from the support of Amundi in the context of the “Measuring and Managing Climate Risks in Investment Portfolios” research chair at EDHEC-Risk Climate, the authors suggest that personal experiences with extreme weather, such as abnormally high temperatures, significantly shape fund managers' perceptions of climate change and influence their investment strategies.
Analyzing data from 280 global locations, the study reveals that heightened climate salience leads to increased demand for stocks with lower emissions and emission intensities.
Read our industry analysis "Climate Salience and the Demand for Green Stocks by Mutual Funds Around the World" for an in-depth look.
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
