Sustainable investing and mutual fund performance: evidence from the Indian market

Purpose This study aims to understand the influence of environmental, social and governance (ESG) and individual scores on the performance of mutual fund schemes (using net asset value, Treynor ratio and total expenses ratio as performance indicators). The relationship between aggregate and disaggregate ESG score and fund performance is assessed under the theoretical lens of modern portfolio and stewardship theory. Design/methodology/approach The hand-picked data from 110 Indian equity-diversified mutual fund schemes for nine years (2015–2023) are used in the research. Static panel data econometrics is applied for empirical data analysis. Findings ESG and social score positively affect the Treynor ratio and NAV, respectively. On the contrary, the governance score has a negative effect on the NAV and Treynor ratio individually. However, the environmental score has no influence on the Treynor ratio and NAV. ESG, environmental and social scores have a negative influence on the TER. By contrast, governance has a positive influence on the TER. Practical implications This research outcomes will assist investors and fund managers in making logical investment decisions to maximize return while minimizing risk. The outcome of this study helps the investor underscore the significance of integrating ESG factors into investment portfolios. Originality/value Interestingly, there is a dearth of research on mutual funds and understanding the performance evaluation of different funds. However, studying the sustainability aspect of the Indian equity diversified fund is rare. The research findings sustainably contribute to the existing body of literature through its novel and robust evidence on the influence of aggregate and disaggregate ESG scores on the NAV, Treynor ratio and TER. As a result, this work stands out for being distinctive and makes various contributions to the scholarly conversation.