Do ESG funds offer lower returns than regular funds?
Although some detractors claim otherwise, the most recent data refutes their claims.
According to recent study by PitchBook (a Morningstar firm), which examined so-called private funds that invest in items like real estate, real assets, private equity, and private debt, this is the case. PitchBook focused on funds managed by companies that signed the criteria for Responsible Investment, pledging to adhere to a specific set of ESG criteria. According to the PitchBook study, these funds outperformed their non-ESG-aligned counterparts. The report, "Are 'ESG Investors' Underperforming?," was created by a group of analysts under the direction of Anikka Villegas.
The results go against certain ESG opponents' theories, which hold that investments influenced by ESG considerations may give limited partners, or LPs, who invest in these private funds, inferior returns. Some of these opponents charge that the general partners, or GPs, who oversee the fund's day-to-day activities have violated their fiduciary obligations to their limited partners.
Some asset managers have voiced anxiety about disclosing their adherence to ESG, their use of ESG tactics, or their evaluation of ESG criteria, according to Villegas. And this gives people a little bit more freedom or comfort to say those things in public.
The results also provide insufficient evidence to support the competing hypothesis that implementing ESG principles can enhance long-term fund performance by reducing risks.