Low Carbon Mutual Funds
Review of Finance (2024) with Stefano Ramelli and Alexander F. Wagner

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.

• Liechtenstein workshop in sustainable finance 2022 Best Paper Award; GRASFI 2019 Best Ph.D. Paper Prize

• Coverage: Harvard Law School Forum on Corporate Governance; ECGI.global; ETF.com; UNPRI.org

Socially Responsible Investing in the Political Context
with Stefano Ramelli, Anna Vasileva, and Alexander F. Wagner, (2025) 

Does the political context influence the weight investors place on non-pecuniary motives when making financial decisions? We provide evidence from incentivized surveys of U.S. investors before and after the 2024 U.S. presidential election. Following Trump’s victory, investors reduced the average green investments due to a revision in financial expectations. However, investors who strongly disapprove of his climate policy increased their non-pecuniary appetite for green assets. These "contrarians" revised their investments by placing greater weight on climate-related considerations and less on financial ones, suggesting that they view green investing as a way to compensate for perceived climate policy inaction. Empirical analyses of real-world ETF flows align with this interpretation. The findings have implications for understanding and modeling values-based investment behavior.

• Selected presentations: 2025 European Finance Association (EFA, Paris), Politics in Finance Conference at Georgetown University (Washington D.C.), CEPR Climate Change and the Environment Symposium (Gerzensee)

Climate Transition Beliefs
with Stefano Ramelli, (2025)
Revise & Resubmit - Management Science

We study an overlooked driver of green investments, heterogeneous expectations about the long-term trajectory of the energy transition (climate transition beliefs). In a representative survey of U.S. retail investors, we observe considerable heterogeneity in climate transition beliefs at different long-term horizons. We find that transition optimism positively correlates with expected green financial performance and preferences for green investments, especially for investors without strong pro-environmental attitudes. Two pre-registered information provision experiments provide causal evidence that transition beliefs play a key role in driving green return expectations and investment decisions. Distinguishing between heterogeneous beliefs and preferences is crucial for better understanding the motivations driving green investments and how they interact. 

• Pessimism video; Optimism video

• Selected presentations: 2024 Helsinki Finance Summit, CEPR Paris Symposium, Research in Behavioral Finance Conference (RBFC, Amsterdam), EPFL-Uni Lausanne, University of Bremen, University of Montpellier (CEE-M), University of Göttingen, University of Virginia, Darden (Brownbag), University of Tilburg (Brownbag)

Catering through transparency: Voluntary ESG disclosure by asset managers and fund flows
with Simon Glossner and Mikael Homanen, (2025)
Revise & Resubmit - Management Science

Environmental, Social, and Governance (ESG) disclosure by institutional investors can help channel responsible capital toward institutions with better ESG practices. We examine institutional investors that must disclose their ESG practices after voluntarily joining the Principles for Responsible Investment (PRI), the largest responsible investment network. Upon joining, investors annually submit publicly available, standardized ESG reports, which are assessed and scored by the PRI. Clients allocate more assets to institutions that receive higher scores on their disclosure, especially if corroborated by third-party ESG fund ratings. The disclosure correlates with more sustainable portfolios and more ESG engagements in countries where responsible institutional asset owners have a stronger presence, and with higher engagement elsewhere.

• Regulatory citation: SEC (2022)

• Semifinalist FMA 2022 Best Paper Award - Investments 

• Selected presentations: 2024 Conference on Financial Market Regulation (CFMR, Washington DC), American Accounting Association (AAA, Washington DC), 2023 EUROFIDAI December Meeting (Paris), Luxembourg Conference in Sustainable Finance, Liechtenstein Workshop of Sustainable Finance, 2022 European Economic Association (EEA, Milan) conference,  ESG and Climate Finance Conference at the University of Glasgow, Financial Management Association (FMA, Atlanda), and Midwest Finance Association (Chicago)

ESG Skill of Mutual Fund Managers
with Richard B. Evans, Simon Glossner,  Mikael Homanen, and Ellie Luu, (2024)

We propose a new measure of ESG-specific skill based on fund manager trades and ESG rating changes. We differentiate between proactive ESG managers, whose trades predict future changes in ESG ratings, reactive ESG managers, who change their portfolio allocation after a change in ESG ratings occurs, and non-ESG managers. The predictive ability of proactive managers is persistent in out-of-sample tests, consistent with manager skill. For identification, we rely on an exogenous methodology change of one ESG rating provider that redefined ESG ratings levels without releasing new information. Reactive managers significantly change their holdings in firms whose ESG ratings exogenously change, consistent with a lack of ESG skill. Proactive managers do not trade in the direction of the change, consistent with their trading no new ESG information. This ESG skill has economic implications: Investors in mutual funds with an explicit sustainability mandate reward proactive managers with 58bps higher average quarterly flows.

• Selected presentations: 2024 European Finance Association (EFA, Bratislava), University of Oklahoma & RFS Climate and Energy Conference, CUHK-RAPS-RCFS conference on Asset Pricing and Corporate Finance, Alpine Finance Summit (Innsbruck), Luxembourg Conference in Sustainable Finance, German Finance Association (DGF, Aachen), EUROFIDAI-ESSEC Paris December Finance Meeting, University of Cologne - CfR Seminar, Corvinus University of Budapest

Which Institutional Investors Drive Corporate Sustainability?
with Simon Glossner, Mikael Homanen and Daniel A. Schmidt (2024)

Many institutional investors publicly commit to some form of responsible investment. This raises concerns about the credibility of such claims. We use participation in collaborative engagements to identify "Leaders", i.e., institutional investors that are truly committed to improving firms' sustainability outcomes. Despite owning only 2.2% of the average firm, Leaders alone explain the positive relationship between institutional ownership and firms’ environmental and social performance. In line with committed owners facilitating corporate change, engagement campaigns improve a targeted firm's sustainable performance only when Leaders have a high ownership stake in the firm.

• GRASFI 2022 Best Paper Award for Transparency for Stakeholders

• Selected presentations: 2024 Annual Hedge Fund Conference (Paris), 2023 Midwest Finance Association (MFA, Chicago), 2022 European Economic Association (EEA, Milan),  Alliance for Research on Corporate Sustainability (ARCS, Milan), German Finance Association (DGF, Marburg) 

• Coverage: institutional-money.com

Gender, performance, and promotion in the labor market for commercial bankers
with Christoph Herpfer and Steven Ongena, (2024) 

We explore the glass-ceiling phenomenon among senior bankers at the top of the income distribution. Despite female bankers outperforming, gender gaps persist due to uneven promotion rates. Local senior bankers and the labor market play crucial roles, with men exhibiting assortative matching with offices based on existing gender gaps, perpetuating them as superiors. Women are less mobile and derive fewer benefits from changing employers. Unlike for average employees, family leave laws provide limited assistance to women at the top. However, lawsuits and female leadership contribute to increased promotion rates. Lastly, lower female mobility leads to negative spillovers towards corporate borrowers.

• Selected presentations: 2024 American Economic Association (AEA, San Antonio), European Winter Finance Conference (EWFC, Megeve), 2023 European Finance Association (EFA, Amsterdam), Financial Intermediation Research Society (FIRS, Vancouver), SFS Cavalcade North America (Austin), University of Oregon Summer Finance Conference (Eugene), 2022 American Finance Association (AFA, virtual), Helsinki Finance Summit, and 2021 European Economic Association (EEA, virtual) conferences

Walk the line: Do investors reward firms that exploit regulatory grey areas? (2023) 

I show that certain institutional investors prefer holding firms that exploit more of the available regulatory wiggle room (WR). Exploited WR is captured by relatively aggressive tax planning, financial reporting, and earnings management. Highlighting the importance of trust, dedicated, long-term investors hold firms that exploit 34% of a standard deviation less WR than those held by quasi-indexers. Moreover, after experiencing financial adviser misconduct that breaches their trust, investors significantly reduce the exploited WR of their holdings. This is consistent with investors choosing firms according to their preferences for WR. Additionally, these preferences impact firms by shaping their behavior.

Coverage: Rothschild SRI Chronicles, No. 18.

Do Investors Care about AI Externalities?
with Rex Wang Renjie

The widespread adoption of Generative AI poses unique social risks, such as privacy breaches, job displacement, and safety threats. These risks arise from AI's ability to use vast amounts of, often non-consensual, data to generate insights that can be biased. This paper leverages the launch and unexpected uptake of ChatGPT to show that equity investors factor in these "AI risks.'' During the two weeks after ChatGPT's release, firms with lower exposure to these AI risks--as proxied by having high ESG ratings--overperformed low-ESG stocks by 4pp. The social pillar score and the product safety and data privacy sub-scores primarily drive this relationship. The repricing of AI risks occurs mainly through the discount rate channel, as the implied volatility of firms with high AI risk exposure significantly increases after the release, while earnings forecasts remain unchanged.