Read Wealth Professional Story on Wayne Winegarden ESG Study

Putting a question mark on ESG fund performance

by Leo Almazora

An increasing number of stakeholders are buying into sustainable investments, figuratively and literally. Aside from fund providers’ growing willingness to offer values-based investment products, there’s a rising clamour from investors who want their money placed in companies with strong ESG profiles.

Another factor behind the trend is the idea that, over the long term, companies that do good also do well. That has allayed the fears of those who believe that there’s a financial trade-off to investing based on convictions. But a new study suggests that the trade-off is no myth, and must be taken seriously.

“In recent years, ESG funds have been presented to investors as socially responsible as well as likely to outperform broader based funds,” said Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics, who authored the study. “But the long-term record of ESG funds when compared to an S&P Index fund show that that’s not necessarily the case.”

Winegarden arrived at his conclusions after an analysis of 30 ESG funds that have either existed for over 10 years or outperformed the S&P 500 over a short-term period. Analysing the 18 funds that have reached the 10-year threshold, the study found that a US$10,000 ESG portfolio would be 43.9% smaller than a broader fund based on the S&P 500 index. Only one of the funds would beat an S&P 500 investment over 5 years, and just two would beat it over a 10-year timeframe.

“In fact, while some funds have outperformed a passive S&P 500 index fund over select short-term periods, ESG funds rarely do so over the long-term,” he wrote . . .

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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