Sustainable Development and Financial System: Integrating ESG risks through sustainable investment strategies in a climate change context

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Sustainable Investment funds are one of the most appropriate ways for the financial
system to contribute to sustainable development. However, the effective contribution of Sustainable Investment funds can vary widely depending on their management strategy. This paper aims to analyze which strategies or combinations of them
allow practitioners to better manage ESG risks in ESG portfolios within a complete
framework consistent with global challenges that focus on sustainability and carbon
risk scores. To analyze the differences between Sustainable Investment strategies,
we adopt a parametric analysis of variance method. We find that, on average, funds
that only apply negative filters achieve worse ESG risk scores and show worse carbon
risk. In sum, this study contributes with more in-depth knowledge about the different
outcomes in terms of sustainability risks of the different SI strategies.