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Do ESG funds make stakeholder-friendly investments?

Raghunandan, Aneesh ORCID: 0000-0003-0443-4984 and Rajgopal, Shiva (2022) Do ESG funds make stakeholder-friendly investments? Review of Accounting Studies, 27 (3). 822 - 863. ISSN 1380-6653

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Identification Number: 10.1007/s11142-022-09693-1


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.

Item Type: Article
Official URL:
Additional Information: © 2022 The Authors
Divisions: Accounting
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M14 - Corporate Culture; Social Responsibility
Date Deposited: 30 May 2022 09:30
Last Modified: 26 Sep 2022 07:27

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