The challenges of the globalization process (climate change, waste of natural resources, social-demographic and ecological problems) promote people and business to become more conscious. As a result, sustainable investing has gained importance in recent years. Sustainable investing is born as socially responsible investing (SRI), an investment process based on an exclusionary screening to eliminate some types of product or industries (alcohol, tobacco, guns…). Over the time, this process gave way to the so called ESG issues (Environmental, Social, Governance) a new method which assesses companies with a 360° view. The environmental risks, such as natural disasters and dramatic climate events, are perceived by the investors as the most potentially dangerous and probable, nowadays. To help investors to take into consideration the climate specific risk, and so to compare and to select the investment funds according to their expose to risks deriving by polluting emissions, Morningstar created the Low Carbon Designation: an indicator based on the Morningstar Portfolio Carbon Risk Score and the Morningstar Portfolio Fossil Fuel Involvement. The purpose of this paper is to analyse the performances of a sample of 133 mutual funds present in three different geographical regions (Europe, US and Asia-Pacific) to find if there are correlations between returns and the Low Carbon Designation. The analysis is divided in two parts: in the first one, it is verified the correlation between the returns and the two variables composing the Low Carbon Designation (Carbon Risk Score and Fossil Fuel Involvement); in the second one, it is assessed if the publication of the Low Carbon Designation as an event has affected the returns. Given all the results, it is possible to conclude that the funds’ returns are definitively affected by both the Carbon Risk Score and the Fossil Fuel Involvement: environmental issues matter, the fund’s management must take them into account and the relative policies during the investment process in order to obtain higher returns. Furthermore, it is observed that the publication of the Low Carbon Designation has positively affected the returns of the related funds, consolidating the supported thesis, according to which “environmental issues matter” and they have to be taken into account by the financial industry.
Le sfide del processo di globalizzazione (cambiamento climatico, spreco di risorse naturali, problemi demografici ed ecologici) ha incrementato lo stato di coscienza di persone ed aziende. Di conseguenza, gli investimenti in ambito sostenibile hanno avuto una rapida crescita negli ultimi anni. Gli investimenti sostenibili sono nati come “Socially Responsible Investing” (SRI), un processo di investimento basato su una esclusione a priori di determinati tipo di prodotti e di industrie (alcol, tabacco, armi, …). Con il passare del tempo, il processo ha ceduto il passo ai parametri ESG (Environmental, Social e Governance), un nuovo metodo che valuta l’approccio sostenibile delle aziende a 360°. I rischi ambientali, come i disastri naturali, sono oggi percepiti dagli investitori come i più probabili e potenzialmente dannosi. Al fine di aiutare gli investitori a prendere in considerazione i rischi relativi al clima e permettere una comparazione oggettiva del livello di esposizione derivante da emissioni inquinanti, Morningstar ha creato la Low Carbon Designation. Esso è un indicatore assegnato ai fondi basato su due variabili: Morningstar Portfolio Carbon Risk Score e Morningstar Portfolio Fossil Fuel Involvement. Lo scopo di questa tesi è quello di analizzare le performance di un paniere di 133 fondi aventi per target di investimento tre differenti aree geografiche (Europa, Stati Uniti e Asia-Pacifico) al fine di verificare la presenza di una correlazione tra ritorni e Low Carbon Designation. L’analisi è divisa in due parti: nella prima, viene verificata la presenza di una correlazione tra i ritorni e le due componenti della Low Carbon Designation; nella seconda, viene studiato l’impatto della pubblicazione di quest’ultima sui ritorni dei fondi. In accordo con i risultati ottenuti, è possibile concludere che i ritorni dei fondi sono influenzati sia dal Carbon Risk Score sia dal Fossil Fuel Involvement: i problemi ambientali e le relative policy vanno necessariamente presi in considerazione nella gestione di un fondo e nella selezione dei target di investimento per ottenere maggiori ritorni. Inoltre, è stato osservato che la pubblicazione della Low Carbon Designation ha avuto un impatto positivo sui ritorni dei relativi fondi, consolidando così la tesi supportata secondo la quale “environmental issues matter” e sono ad oggi un elemento di fondamentale rilevanza nell’industria finanziaria.
The effect of carbon involvement on funds' performance
CORTI, MARCO;RATTI, NICOLO'
2017/2018
Abstract
The challenges of the globalization process (climate change, waste of natural resources, social-demographic and ecological problems) promote people and business to become more conscious. As a result, sustainable investing has gained importance in recent years. Sustainable investing is born as socially responsible investing (SRI), an investment process based on an exclusionary screening to eliminate some types of product or industries (alcohol, tobacco, guns…). Over the time, this process gave way to the so called ESG issues (Environmental, Social, Governance) a new method which assesses companies with a 360° view. The environmental risks, such as natural disasters and dramatic climate events, are perceived by the investors as the most potentially dangerous and probable, nowadays. To help investors to take into consideration the climate specific risk, and so to compare and to select the investment funds according to their expose to risks deriving by polluting emissions, Morningstar created the Low Carbon Designation: an indicator based on the Morningstar Portfolio Carbon Risk Score and the Morningstar Portfolio Fossil Fuel Involvement. The purpose of this paper is to analyse the performances of a sample of 133 mutual funds present in three different geographical regions (Europe, US and Asia-Pacific) to find if there are correlations between returns and the Low Carbon Designation. The analysis is divided in two parts: in the first one, it is verified the correlation between the returns and the two variables composing the Low Carbon Designation (Carbon Risk Score and Fossil Fuel Involvement); in the second one, it is assessed if the publication of the Low Carbon Designation as an event has affected the returns. Given all the results, it is possible to conclude that the funds’ returns are definitively affected by both the Carbon Risk Score and the Fossil Fuel Involvement: environmental issues matter, the fund’s management must take them into account and the relative policies during the investment process in order to obtain higher returns. Furthermore, it is observed that the publication of the Low Carbon Designation has positively affected the returns of the related funds, consolidating the supported thesis, according to which “environmental issues matter” and they have to be taken into account by the financial industry.| File | Dimensione | Formato | |
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Thesis - Corti Marco and Nicolò Ratti - The effect of carbon involvement on funds' performance.pdf
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https://hdl.handle.net/10589/142411