Are All ESG Funds Created Equal? Only Some Funds Are Committed

58 Pages Posted: 26 May 2022 Last revised: 21 Nov 2022

See all articles by Michelle Lowry

Michelle Lowry

Drexel University; European Corporate Governance Institute (ECGI)

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Kelsey D. Wei

University of Texas at Dallas

Date Written: March 15, 2022

Abstract

Although flows into ESG funds have risen dramatically, it remains unclear whether these funds are truly committed to sustainable investments and how much their investments matter. We shed light on this debate by examining the incentives of fund managers. We find that conditional on similarly large ESG investments, ESG funds vary in their incentives to engage with portfolio firms. ESG funds with higher incentives to engage – committed ESG funds – hold their ESG investments longer, pay more attention to portfolio firms’ ESG risk exposure and implement less negative screening. They also demonstrate more discretionary voting on portfolio firms’ ESG proposals. Strikingly, only investments by committed ESG funds contribute to real ESG-improvements, and these funds have outperformed other ESG funds on their ESG holdings. Our paper highlights the importance of incentives when assessing the real impacts of sustainable investments and calls for greater investor awareness of a hidden form of greenwashing.

Keywords: mutual funds, ESG

JEL Classification: G11, G30

Suggested Citation

Lowry, Michelle B. and Wang, Pingle and Wei, Kelsey D., Are All ESG Funds Created Equal? Only Some Funds Are Committed (March 15, 2022). Available at SSRN: https://ssrn.com/abstract=4104700 or http://dx.doi.org/10.2139/ssrn.4104700

Michelle B. Lowry

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Pingle Wang (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

HOME PAGE: http://www.wangpingle.com

Kelsey D. Wei

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
9728835978 (Phone)

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