The War in Ukraine: A Turning Point for Sustainable Investing? An empirical study of investor preferences, performance and downside risk in the European mutual fund market

Abstract

This thesis examines the impact of the war in Ukraine on sustainability-related investor preferences, performance, and exposure to downside risk in the European mutual fund market. We analyse a sample of 1,952 actively managed global equity mutual funds registered for sale in Europe using data from February 2021 to February 2023. We do not find evidence of statistically significant differences in relative flows between high sustainability funds and their conventional peers in response to the war. However, investigating specific sustainability strategies, we find climate action-themed funds to experience higher relative flows and funds applying exclusion of either military contracting or fossil fuels to experience lower relative flows after the out break of the war, reflecting changes in public opinion and energy demand. Examining these effects, we observe no statistically significant difference in relative flows between institutional and retail investors. We find high sustainability funds and climate action-themed funds to perform better relative to their peers during the war, but we find no evidence of a relationship between sustainability and downside risk exposure. Overall, our findings suggest that sustainability remains a source of resilience through the war and that some investors have increased their sustainability focus, despite increased acceptance of controversial industries like fossil fuels and military contracting.