By Sanjai Bhagat. He is a professor of finance at the University of Colorado. Excerpts:
"ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds."
"ESG funds don’t seem to deliver better ESG performance either."
"companies in the ESG portfolios had worse compliance record for both labor and environmental rules [than companies in non-ESG portfolios]."
"companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations."
"A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing . Furthermore, the financial returns were lower and the risk higher for the PRI signatories."
"setting ESG targets may actually distort decision making"
"also some evidence that companies publicly embrace ESG as a cover for poor business performance."
"when managers underperformed the earnings expectations (set by analysts following their company), they often publicly talked about their focus on ESG. But when they exceeded earnings expectations, they made few, if any, public statements related to ESG."
"funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests."
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ESG Investing in the Pandemic Shows Power of Luck
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Funds that market themselves as sustainable investments aren’t necessarily focused on companies that fight climate change, develop wind turbines or promote diverse boards
ESG Funds Draw SEC Scrutiny (companies that pursue strategies to address environmental, social or governance challenges)
Is it a retailer’s job to keep shoppers from their vices? (or Adam Smith vs. CVS pharmacy)
Can You Find Virtue by Investing in Vice?
What if companies pledge to adhere to social and environmental accountability guidelines?
Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)
Data show that socially responsible investments can outperform the S&P 500 index
Is altruism a result of selfishness?
Do you have to be selfish to make more money?
Does collective self-deception mask selfish behavior?
Why Doing Good Makes It Easier to Be Bad
Businesses intentionally display their social and environmental performance in addition to their financial performance to stakeholders
Should you invest according to religious guidelines?
Companies Adapt to Activism by Athletes
For a humorous view of this issue see
A Snickers a Day Keeps the Doctor Away: Why does CVS want to make my migraine cures hard to find? by Joseph C. Sternberg of the WSJ