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

Abstract

There is significant heterogeneity in incentives of fund managers to engage with portfolio firms. We argue that differences in ESG funds’ incentives affect their information acquisition, investment strategies, engagement activities, and real impacts. Our findings support these predictions. Conditional on similarly large ESG investments, those funds with higher incentives to engage, i.e., committed ESG funds, differ significantly from other ESG funds along these dimensions. Moreover, committed ESG funds have outperformed other ESG funds within longer held positions and within ESG stocks. Our findings highlight that committed ESG funds view ESG as a value driver.

Keywords: mutual funds, ESG

JEL Classification: G11, G30