Combining Carbon Risk and Active Management: Opportunities for Emerging Market Mutual Funds

Proceedings of the 6th International Conference on Future of Business, Management and Economics

Year: 2024

DOI:

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Combining Carbon Risk and Active Management: Opportunities for Emerging Market Mutual Funds

Juan Carlos Matallín-Sáez, Amparo Soler Domínguez, Diego Víctor de Mingo-López

 

 

ABSTRACT:

Investors are becoming more aware of sustainable investment, and several financial institutions aim to meet their needs by investing in companies involved in low-carbon emission activities. Drawing conclusions about active management of funds is therefore a major concern to enhance both financial and sustainable performances. Accordingly, this study explores active management and portfolio carbon risks in emerging market mutual funds. Results show that low-carbon funds and more active funds achieve greater abnormal returns. Specifically, funds with lower carbon risks perform better among less active funds, while more active funds outperform among high-carbon risk funds. This evidence emphasises the role of strategic and tactical asset allocations on fund performance, and entails that active manager, who take a holistic approach by integrating sustainable criteria in financial decisions, navigate towards the best investment opportunities while transitioning towards a low-carbon world.

keywords: Mutual fund, performance, emerging markets, carbon risk, active management.