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What is the impact of ESG constraints on the performance of equity funds? A case study on DPAM funds

Ockerman, Rayan
(2024)

Files

OCKERMAN_45341900_2024.pdf
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Details

Supervisors
Iania, Leonardo
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
This study investigates the impact of ESG constraints on the performance of equity funds, focusing on Europe, Asia, the United States, and the world. The research aims to isolate the effect of ESG strategies (negative screening and best-in-class) on active returns and decompose their impact at the sector level. Using an ESG performance attribution model derived from the Brinson return attribution model, the study analyses data from four DPAM equity funds over three years (2021-2023). The findings indicate that the best-in-class strategy tends to contribute positively to active returns in all cases, especially in the United States and globally, while the negative screening strategy tends to have a consistently negative impact. Sector-level analysis shows that the energy sector, which is completely blacklisted, is the most negative contributor, representing an opportunity cost, while the information technology and financial sectors are the most positive. Additionally, after applying the ESG constraints, the selection effects show higher variability and downside risk. Limitations include the short analysis period, the influence of the post-COVID-19 macroeconomic environment, and variations in ESG rating methodologies. Future research should extend the analysis period, compare methodologies across different asset managers, and refine the model to ensure more neutral weight reallocations.