SEMINÁRIO - Article 8 and 9 Funds: Does Environmental Thematic Orientation matter for Fund Performance?

Article 8 and 9 funds are mutual funds that pursue environmental objectives, and have been established following the adoption of the Sustainable Finance Disclosure Regulation and its related EU Taxonomy regulation. Article 8 and 9 funds also differ in terms of their specific environmental themes such as biodiversity, GHG emissions and renewable energy. The objective of this paper is to detect latent groups of mutual funds with similar combinations of environmental investment themes among the funds that report under Articles 8 and 9 and compare their performance relative to both EU funds that do not report under Articles 8 and 9 and non-EU funds.  This paper uses a two step approach, where in the first step K-Modes clustering to identify different clusters. Next, Data Envelopment Analysis was used to compare their performance in terms of return, risk, and Environmental-Social-Governance scores; the method distinguishes both pure inefficiency relative to the cluster-specific frontier and program inefficiency that is due to the restrictions in the investment policy that follow from the specific thematic focus. The application of K-Modes clustering revealed four groups of mutual funds with specific combinations of environmental thematic focus. The results of the DEA analysis shows that the mutual funds can, on average improve their Return and ESG scores by 7%, 9%, respectively and simultaneously reduce their risk by 7%. The pure inefficiency relative to the cluster-specific frontier is the largest inefficiency component of the overall inefficiency. Program inefficiency only represents a small part of the overall inefficiency of the mutual funds.