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      Do ESG funds make stakeholder-friendly investments?

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      Review of Accounting Studies
      Springer Science and Business Media LLC

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          Abstract

          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 (as identified by Morningstar) in the United States 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. Despite these findings, ESG funds hold portfolio firms with higher average ESG scores. We show that ESG scores are correlated with the quantity of voluntary ESG-related disclosures but not with firms’ compliance records or actual levels of carbon emissions. Finally, ESG funds appear to underperform financially relative to other funds within the same asset manager and year, and to charge higher fees. Our findings suggest that socially responsible funds do not appear to follow through on proclamations of concerns for stakeholders.

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          Most cited references21

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          The price of sin: The effects of social norms on markets

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            What Matters in Corporate Governance?

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              Do investors care about carbon risk?

                Author and article information

                Contributors
                (View ORCID Profile)
                Journal
                Review of Accounting Studies
                Rev Account Stud
                Springer Science and Business Media LLC
                1380-6653
                1573-7136
                September 2022
                June 27 2022
                September 2022
                : 27
                : 3
                : 822-863
                Article
                10.1007/s11142-022-09693-1
                ed580a3c-df09-46c9-9820-56bc9ae2d7e2
                © 2022

                https://creativecommons.org/licenses/by/4.0

                https://creativecommons.org/licenses/by/4.0

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