Do ESG funds have higher ESG scores?

WHAT do investors look for when they buy environmental, social, and governance (ESG) equity index funds? In principle, as in any fund investment decision, it could be higher financial returns, greater portfolio diversification, reduced volatility, etc.

But whatever investors hope ESG funds deliver, they likely expect them to perform better on ESG criteria than their alternatives. After all, why call the funds “ESG” if they don’t take ESG factors into account in their investment decisions?

The issue is not just academic. ESG funds, including both unit trust funds and exchange-traded funds (ETFs), have grown into a US$400 billion market in the United States alone.