Essays on ESG investing

Ramadan, Ebtehal 2025. Essays on ESG investing. PhD Thesis, Cardiff University. Item availability restricted.

Preview	PDF - Accepted Post-Print Version Download (3MB) | Preview
	PDF (Cardiff University Electronic Publication Form) - Supplemental Material Restricted to Repository staff only Download (123kB)

Abstract

Environmental, Social, and Governance (ESG) investing, also known as Socially Responsible Investment (SRI), seeks to align financial practices with ESG objectives by promoting investment vehicles that deliver financial returns while fostering positive social and environmental outcomes. ESG investment has grown rapidly in recent years, attracting attention from investors, policymakers, business leaders, employees, regulators, and academics alike. This thesis outlines three chapters that contribute to this growth in the literature on ESG investing. A common theme across these chapters is a deeper exploration of investor behaviour in allocating capital to ESG funds. Chapter 2 investigates how investors and fund managers aligned their actions with the objectives of the EU Sustainable Finance Disclosure Regulation (SFDR). The SFDR requires funds marketed in the EU to classify themselves as Article 9 (Dark Green), Article 8 (Light Green), or Article 6 (Other). Paradoxically, the findings suggest that the regulation may have produced outcomes contrary to its intended purpose. Specifically, there is no evidence that Article 9 funds received higher inflows than Article 8 or Article 6 funds following SFDR’s application. However, other fund characteristics, such as lagged flows, past returns, age, size, and four-factor alpha, appear to influence fund flows. Propensity Score Matching (PSM) results show that Article 9 funds still attracted higher mean inflows than their matched Article 8 and Article 6 peers. Overall, while panel, difference-in-differences (DiD), and event study analyses report no significant increase in flows to Article 9 funds, the PSM results indicate that these funds remained the most appealing to investors. Furthermore, only Article 8 fund managers increased their exposure to firms with medium to high Refinitiv ESG scores after the announcement of SFDR in November 2019, whereas Article 9 and Article 6 funds showed no such change. Chapter 3 examines differences in performance and flow-performance sensitivity between ESG and conventional funds, and whether these differences vary across regions. The results reveal no significant performance difference between U.S. ESG active funds and their matched conventional active peers, while EU ESG active funds outperform their conventional counterparts. Conversely, US ESG passive funds underperform their matched conventional peers, whereas no significant difference is observed between EU ESG passive funds and their conventional equivalents. These performance disparities are largely attributable to differing portfolio compositions across regions. Further analysis of flow performance sensitivity shows that EU ESG active investors place greater value on the non-financial attributes of ESG investments compared to their US counterparts. Moreover, US conventional active investors appear to exhibit greater investment sophistication than those in the EU. Overall, the findings suggest that EU ESG investors, both active and passive, emphasize the non-financial dimensions of ESG investing more strongly than their US peers. Chapter 4 explores how ESG investors respond to ambiguity and compares their behaviour to that of investors focused on conventional funds. The results indicate that both US and EU ESG active investors derive utility primarily from non-financial aspects of their investments, as reflected in their neutral response to ambiguity (i.e., minimal sensitivity to poor performance). This behaviour is also observed among conventional active investors in both regions. In contrast, US ESG passive investors appear more financially motivated, exhibiting aversion to the lowest performance outcomes. Additionally, investors across both ESG and conventional categories assess ambiguity not only in terms of performance but also in relation to other fund characteristics, including flow volatility, fund family size, and strategy changes.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Schools > Business (Including Economics)
Date of First Compliant Deposit:	1 December 2025
Last Modified:	01 Dec 2025 16:56
URI:	https://orca.cardiff.ac.uk/id/eprint/182781

Actions (repository staff only)

Edit Item