Analysis the role of ESG mutual funds in shaping investors preference: An Empirical Study

Abstract

Introduction: ESG mutual funds have become increasingly popular as investors can achieve both financial returns and sustainable investment. It is hence important that fund managers and policymakers understand factors that affect investor preference in ESG mutual funds..

Objectives: This paper will explore the ESG mutual fund attributes and how these attributes affect investor preferences by investigating investors' perceptions of ESG mutual funds. It also explores the existence of preference of investors in relation to major demographic attributes..

Methodology: Primary data in the form of a structured questionnaire were collected from 93 mutual fund investors, using a quantitative research design. To determine investors' perceptions, descriptive statistics were utilised, and reliability and validity were assessed using Cronbach’s alpha, KMO, and Bartlett’s tests. The ESG dimensions were found using the Exploratory Factor Analysis. Demographic differences were tested using a one-way ANOVA, and the impact of ESG characteristics on investor preferences was analysed using multiple regression.

Results: The results suggest positive investor views of ESG mutual fund characteristics, specifically governance quality and environmental responsibility, which have the highest mean scores. Factor analysis identified four ESG dimensions, which explained 76.60 per cent of the total variance. The ANOVA results show differences in investor preferences by age and investment experience. Regression analysis indicates that the quality of governance and environmental responsibility significantly influence investor preference positively, whereas social responsibility is not a significant predictor.