4.3. Regression: effects of sustainability approaches on the funds’ portfolio impact

Table 8: Results of t-tests comparing conventional funds and the conventional benchmarks of the sustainability funds

ESG Impact [A+; D-] resp. [1; 0] Carbon intensity (tCO2eq / mUSD revenue) Critical activities (% revenue)

Major environmental controversies (% involvement)

p-value 0.459, not sign. 0.871, not. sign. 0.370, not. sign. 0.358, not sign. Ø conventional funds 0.48 1061 14% 1.2% Ø benchmarks 0.46 1090 16% 1.8%

* significant at 0.05-level, ** significant at 0.01-level, *** significant at 0.001-level

Source: Inrate ESG Impact data as of October 2020 and Climate Impact data as of October 2020.

Table 9: Results of t-tests comparing the percentage of critical activities in conventional funds and the conventional benchmarks of the sustainability funds

Agriculture & fishing Mining & metal production Fossil fuels Cement production Transportation Defence Nuclear energy Genetic engineering

p-value 0.213, not sign. 0.936, not sign. 0.652, not sign. 0.581, not sign. 0.209, not sign. 0.192, not sign. 0.245, not sign. 0.906, not sign.

Ø conventional funds

1.5% 1.5% 6.4% 0.3% 3.2% 0.7% 0.4% 1.8%

Ø conventional benchmarks

1.0% 1.5% 7.1% 0.3% 4.8% 1.0% 0.6% 1.9%

* significant at 0.05-level, ** significant at 0.01-level, *** significant at 0.001-level

Source: Inrate ESG Impact data as of October 2020.

We investigated the effects of seven sustainability approaches (best-in-class, engagement, ESG integration, exclusion, impact investment, positive selection, thematic sustainability approach) on the portfolio impact of sustainability funds, compared to the portfolio impact of conventional funds. The impact was measured with the four dependent impact variables (see chapter 3.2.2). This way we could examine if the application of a sustainability approach effectively enhanced the sustainability impact of a portfolio. As a control, we included the regional investment focus, the benchmark type, portfolio concentration and tracking error in the regression models.

Amongst the sustainability approaches, positive selection and thematic sustainability approaches each significantly improved one of the dependent impact variables (Table 10):

Thematic sustainability approaches significantly increased the ESG Impact score by 0.04. Positive selection approaches significantly reduced the involvement in major environmental activities by 0.9 percentage points. None of the other sustainability approaches had a significant effect on any of the dependent impact variables.

The regional investment focus had a significant effect on the on ESG Impact score: funds with a global focus or a focus on USA/North America had a significantly worse ESG Impact score than funds with a focus on EU/EMU/Europe (global: -0.02; USA/North America: -0.06). With regards to major environmental controversies, funds with a focus on USA/North America had a significantly higher involvement than funds with a focus on EU/EMU/Europe by 1.1 percentage points.

Three dependent impact variables – ESG Impact score, carbon intensity and share of critical economic activities – were significantly influenced by the concentration. The higher the concentration, the higher the ESG Impact score, the lower the carbon intensity and the lower the share of critical activities.

Last but not least, the ESG Impact score was significantly affected by the coverage. With increasing coverage, the score also increased. However, neither benchmark type nor tracking error had a significant influence on any of the dependent impact variables.