Abstract
Using firm-level ESG news indices, we examine whether active mutual fund managers skillfully integrate material ESG information into their portfolio decisions. We find firm-level ESG news affects mutual fund holdings. Fund managers incorporate material ESG news to cater to investor demand and they also improve their risk-adjusted performance. The ESG news-holding relation is stronger during periods of high ESG demand. In the cross-section, the relation is stronger among funds with retail-oriented clienteles, better ESG ratings, and higher marketing fees. In addition, funds located in Democratic states and managed by “domestic” managers exhibit stronger sensitivity to ESG news