Mutual fund investment and ESG rating: evidence from mutual fund holdings in Taiwan

This study explores the relationship between mutual fund investment behavior and ESG ratings. ESG funds generally outperform non-ESG funds in terms of ESG scores. Funds that are larger, more established, and have stronger past performance tend to receive higher ESG ratings. Higher-rated funds attract more investor capital and achieve better subsequent performance. Mutual fund companies increase their holdings in portfolios with improving ESG ratings but do not significantly reduce holdings in firms facing negative ESG news. Overall, the preference for firms with higher ESG ratings appears to be motivated more by performance considerations than by genuine ESG commitment.