Seminar – Sustainability or performance? Ratings and fund managers’ incentives

Nickolay Gantchev, Professor of Finance, Warwick Business School, University of Warwick

We explore how mutual fund managers and investors react when the tradeoff between sustainability and performance becomes salient. Following the introduction of Morningstar’s sustainability ratings (the “globe” ratings), mutual funds increased their holdings of sustainable stocks to attract flows. Such sustainability-driven trades, however, underperformed, impairing the funds’ overall performance. Consequently, a tradeoff between sustainability and performance emerged. In the new equilibrium, the globe ratings do not affect investor flows and funds no longer trade to improve their globe ratings.

Speaker bio

Nickolay Gantchev is a Professor of Finance at Warwick Business School at the University of Warwick, a CEPR Research Fellow, and an ECGI Research Member. He holds a PhD in Finance from the Wharton School at the University of Pennsylvania and an MBA/MS in Finance from the Carroll School of Management at Boston College. Prior to joining Warwick in July 2020, Dr. Gantchev served on the faculty of the University of North Carolina at Chapel Hill and Southern Methodist University.

Dr. Gantchev’s primary research area is empirical corporate finance, with a focus on corporate governance, shareholder activism, and sustainable finance. In particular, he has contributed to the literature on hedge fund activism. In his publications, Dr. Gantchev investigates the incentives of hedge funds to become activists, specific mechanisms through which activists influence the M&A strategies of their targets, and spillover effects of activism on non-targeted firms. His recent publications examine the benefits and costs of individual investor activism through shareholder-sponsored proposals and the role of market discipline in creating an environmentally and socially sustainable economy.

A light lunch will be served in the seminar room from 12:15.

For more information, please contact Emily Brown.