Do ESG Funds Make Stakeholder-Friendly Investments?

58 Pages Posted: 19 Apr 2021 Last revised: 13 May 2021

See all articles by Aneesh Raghunandan

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia Business School

Date Written: May 3, 2021


Investment funds that claim to focus on socially responsible stocks have proliferated in recent times. In this paper, we verify whether ESG mutual funds actually invest in firms that have stakeholder-friendly track records. Using a comprehensive sample of self-labelled ESG mutual funds in the US from 2010 to 2018, we find that these funds hold portfolio firms with worse track records for compliance with labor and environmental laws, relative to portfolio firms held by non-ESG funds managed by the same financial institutions in the same years. Relative to other funds offered by the same asset managers in the same years, ESG funds hold stocks that are more likely to voluntarily disclose carbon emissions performance but also stocks with higher carbon emissions per unit of revenue. We find no evidence that these funds are buying firms based on expectations of future improvement and that increased monitoring by ESG funds does not correlate with any improvement in portfolio firms’ future compliance with stakeholder-centric regulations. Finally, ESG funds appear to underperform financially relative to other funds within the same asset manager and year and charge higher fees. Our findings suggest that socially responsible funds do not appear to follow through on proclamations of concerns for stakeholders.

Keywords: social responsibility, ESG, SEC, environmental and labor laws, mutual fund, Violation Tracker

JEL Classification: M14, G23, G34

Suggested Citation

Raghunandan, Aneesh and Rajgopal, Shivaram, Do ESG Funds Make Stakeholder-Friendly Investments? (May 3, 2021). Available at SSRN: or

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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