ESG Integration in International Mutual funds: Does the degree of Sustainability affect the financial performance?

Sustainable and responsible investments is a rapidly growing market sector,rasing both opportunities and doubts among investors’ portfolio. For the latter, investing often means making choices that are consistent not only with own return objectives and risk objectives, but also with own values and moral convictions. In recent years, the pattern of sustainability and social responsibility has played also a protection mean during many unexpected events such as financial crises, human rights, workers' health, natural disasters and other events related to climate change ,increasingly capturing the attention of investors who are becoming more aware of the importance of sustainability and social responsibility. The following research thesis has the aim to study the effects and the differences of socially responsible investments (SRI) on ESG-screened portfolios consisting of European and Global funds divided into three main categories ( Large Cap Blend Equity, Balanced and Corporate Bond). In particular the thesis focuses more on whether High-ESG scored open mutual funds either affect positively funds performance or offer a better protection against extreme losses. The willingness and the motivation to go deeper on such concerned topic has been supported by the Amletic doubt “to do well by doing well”, in an attempt to provide evidence if the use of social screens comes at the cost of financial perfomance or if it enhances the opportunities for higher returns. (Leite, Cortez, 2013). The following thesis will adopt adopt , as strategy of responsible investments, the best-in-class and screening approach by dividing the sample in funds that implement in ther investment selection best-in-class or screening strategy using as a tool the dichotomous variable called “Dummy_Strategy”. Summing up, the thesis examines firstly the impact of the degree of ESG score, divided into the three main pillar Environmental,Social and Governance, on financial perfomarce measured by the cumulative annual average return using a multi-factorial regression and subsequently studies whether mutual funds with higher ESG score are more or less exposed to tail risk by using the Value At Risk( VaR). Moreover, i decide to conduct in addition a robustness tests to check the consistency of the results obtained and to infer complementary comments through a quantile regression. To achieve my results, i use the Refinitiv ratings data to select funds based and to measure the ESG score. Refinitiv provides ESG content collection operations in the world. Their database platform comprises two overall ESG scores: ESG score which measures the company’s ESG performance based on verifiable reported data in the public domain and ESG Combined (ESGC) score which overlays the ESG score with ESG controversies to provide a comprehensive evaluation of the company’s sustainability impact and conduct in of time. My empirical results show that the ESG Score’s main pillars are significant in explaining the financial perfomance and the protection towards tail risk, and in particular portfolio build with funds presenting higher ESG score are perfoming a bit better than those “conventional”. The reminder of the thesis proceeds in the following structure: Section A is dedicated in explaining the main features for Social Responsible Investment (SRI), Section B presents a review of the extent literature regarding different methodologies used by prior studies and the corresponding results obtained,Section C describes the data , Section D is about the research methodology, Section E provides the main empirical results and in conclusion Section F discusses the conclusion and critical comments about the results obtained.