LAUSR

Abstract In this research, I study the exposure of Socially Responsible mutual funds (SR) to black industries (i.e., carbon-intensive sectors: fossil fuel, metal and utilities) and its effect on the financial performance. To this purpose, I analyze the industry portfolio allocation of a sample of 136 actively-managed US SR mutual funds, investing in domestic and global equity, in the period January 2012–December 2018. I observe that the average weight of black industries in these portfolios is 9.51% falling over time (13.45% in 2012 versus 7.40% in 2018). Another finding is that a greater exposure to fossil fuel and metal industries negatively impacts the portfolios' financial performance. In addition, SR funds managed by firms located in Republican-leaning states and in states with greater CO2 emissions per capita, are more exposed to carbon-intensive industries, suggesting that SR funds' managers could be influenced by local factors when making their investment decisions. Finally, I observe that SR funds marketed under “low-carbon” labels live up to their name and are less exposed to fossil fuel and metal industries than other types of SR funds.