ABSTRACT
This chapter analyzes ESG risk management in investment funds, beginning with the impact of regulations and initiatives in Europe and the United States. It highlights problems in portfolio construction and trends in portfolio restructuring after reporting periods and evaluates the exposure of investment funds, where ESG risks are most pronounced. It describes related problems with the type of funds, geographical location, and regulatory impact on their activity. Geographical location bias is related to the variance in investment funds activity in particular regions. Differentiation between types of funds helps to assess their effectiveness. This chapter discusses the reasons for each bias in this situation. The interaction between ESG risk and portfolio allocation and asset liquidity is discussed, showing problems related with the window dressing and implications for risk management. There are also underlined problems with the quality of portfolio of the green funds and greenwashing phenomenon. A literature review about each of the mentioned phenomenon is presented.
