Track: COVID-19 Analytics Competition

Abstract

In this research paper, the focus is on exploring the impact of Environmental, Social, and Governance (ESG) performance on the performance of mutual funds in the context of the COVID-19 pandemic. The study employs Data Envelopment Analysis (DEA) and conducts various hypothesis tests to assess the impact of ESG controversies scores on the efficiency of mutual funds. The analysis is conducted on a sample of 17,961 mutual funds from around the world, considering data available during the later phase of the COVID-19 pandemic. The DEA methodology is used to evaluate the performance of mutual funds, and their efficiency scores are determined through the DEA Portfolio Efficiency Index (DPEI). The sample is divided into two groups based on the quartiles of ESG scores to investigate the influence of ESG controversies scores on mutual fund performance.

The findings indicate that mutual funds with higher ESG controversies scores outperformed those with lower scores. Regardless of the geographic focus of the funds' investments, mutual funds with stronger ESG performance exhibited greater financial efficiency. These insights have significant implications for both investors and mutual fund managers. Investors, whether retail or institutional, should recognize the potential performance benefits associated with investing in socially responsible mutual funds during the COVID-19 pandemic. Furthermore, mutual fund managers are advised to avoid including securities with ESG controversies in their portfolios, as doing so can lead to enhanced financial efficiency during periods of health, environmental, or market crises. It is important to note that the study's primary limitation is the lack of available time-series data for mutual funds throughout the COVID-19 pandemic. This study stands out as the first to utilize the ESG controversies score as a determinant of mutual funds' financial efficiency during the COVID-19 era.