An Australian investment intelligence firm has revealed the results of a study which has been tracking the investment performance of 66 mutual funds that focus on investing in companies with positive environment, social and corporate governance (ESG) characteristics.
Rainmaker Information says it found ESG investment funds outperformed the overall market, showing that an ESG focus can boost investment performance.
For the period ending November 2021, the international equities funds with a strong ESG focus outperformed by 3.2% p.a. over 12 months, 1.9% p.a. over three years and 1.6% p.a. over five years.
“The ESG sector is often treated as a de facto sector as if it was its own asset class. But in reality, most ESG managed funds are equities funds,” said executive director of research and compliance at Rainmaker Information, Alex Dunnin.
“The key strategic point is that over these time periods, there is robust evidence that choosing ESG investment strategies in no way detracts from performance. Indeed, it is likely to boost it.
“Being ESG in itself cannot make a managed fund superior. But if a superior investment manager runs an ESG fund it is very likely that fund will also be superior.
“That is, only good investment managers can run good ESG funds. Claiming to be ESG does not compensate for low quality investment expertise.”
The 66 ESG investment funds tracked by Rainmarker collectively hold close to US$14 billion in assets under management (AUM).
The outperformance results from the study do not take account of investment style, scale, fees or product structure.
Rainmaker also ran a concurrent study tracking ESG investment funds that hold only Australian equities.
For the Australian equities managed funds sector, the effect was still positive but weaker as they outperformed by only 0.2% p.a. over 12 months, 0.8% p.a. over three years and 0.4% p.a. over five years.
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