ESG Spillovers

We study ESG and non-ESG mutual funds managed by overlapping teams. We find that non-ESG mutual funds include more high ESG stocks after the creation of an ESG sibling, and the high ESG stocks they select exhibit superior performance. The low ESG stocks selected by ESG funds also exhibit superior performance and despite being more constrained, the ESG funds outperform their non-ESG siblings. The latter result is consistent with fund families making choices that favor ESG funds. Specifically, ESG funds tend to trade illiquid stocks prior to their non-ESG siblings and get preferential IPO allocations.