Climate news drives ESG fund flows: BIS – Investment Executive


Climate news drives ESG fund flows: BIS
Research finds media coverage boosts fund flows, portfolio allocations
Flows into “green” mutual funds are correlated with the public attention that climate issues receive — leading to higher capital allocations to more sustainable companies — according to new research from the Bank for International Settlements (BIS).
A new working paper from the Monetary and Economic Department at the BIS attempts to examine the impact of growing public attention to climate-related issues on mutual fund flows by looking at the relationship between the volume of climate news and flows into actively managed funds.
Using data on monthly fund flows between 2006 and 2022 from Lipper, and the Media and Climate Change Observatory (MeCCO) index — a news index compiled from various databases (including Lexis Nexis, Proquest, and Factiva) that covers U.S. media — the research finds that flows into “green” funds are correlated with increased media attention to climate issues.
According to the paper, media coverage of climate issues tends to rise with major policy events, such as the periodic COP conferences. It also increases in response to extreme climate events, such as damaging storms, that focus more attention on the effects of climate change.
“We find that a higher coverage of climate issues, in terms of more news on the topic, results in significantly larger capital inflows into green funds relative to non-green counterparts,” the paper said. “The effect of such a rise in public attention to climate change on mutual funds flow remains significant up to four months after the news shock, and is thus persistent.”
In particular, the research found that the increased media coverage of transition risk — such as efforts to curb emissions to avoid damaging global temperature rise — was the primary driver of inflows into green funds.
Further, increased coverage of physical risk — such as severe weather events that are connected with climate change — is correlated with portfolio decisions by the funds themselves.
“Our results suggest that increasing public attention to climate is associated to a larger increase in mutual funds’ holdings of firms emitting lower levels of greenhouse gas, especially by green funds. In particular, green funds persistently reduce their investments in high emitters relative to low emitters in response to climate news,” it said.
And, the paper concluded, “Overall, our results confirm that public attention on climate issues has a significant impact on financial markets, driving capital flows to greener actors, and have a potential real effect in increasing the exposure towards environmentally-friendly investments, thus ultimately favoring the ongoing green transition process.”
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