Barclays has questioned whether funds specifically marketed as “ESG” offer any outperformance or sustainability benefit, compared to traditional mutual funds.
The claim was made in a report entitled ESG funds: Looking beyond the label, released this week.
It found that despite attracting substantial inflows in recent years, ESG funds typically do not score higher for the ESG credentials of their underlying holdings than standard mutual funds. They did, however, have higher charges.
“Responsible investing has become a hot topic in financial markets in recent years with many investors racing to integrate ESG issues into their investment process,” says Jeff Meli, head of research at Barclays.
“In this new report, our Quantitative Portfolio Strategy team combed through two decades of funds’ holding data and found a lack of difference in holdings and investment styles between ESG-focussed and non-ESG US equity funds.”
The bank’s research team suggested that fund managers had been making themselves more attractive to investors by branding strategies with a sustainable or ESG label, however.
“An ESG label may attract more investors’ money compared with conventional funds,” the report’s authors Arik Ben Dor and Carlo Rosa wrote.
According to the research, ESG-labelled funds attracted a higher percentage of inflows than other equity funds in every year since 2013.
ESG funds have, on average, witnessed inflows of around 7% per year, while non-ESG ones experienced yearly outflows of 2%, the Barclays team concluded.
The growth in assets under management has been driven by interest in sustainable investing rather than superior performance, the research unit added.
“This report continues a series of studies by the QPS team investigating the impact of a portfolio’s ESG tilt on performance and other aspects of the investment process, covering both credit and equity markets,” says Lev Dynkin, head of QPS research.
More information on the report is available here.