Private investors are increasingly interested in aligning their investments with their values and
using their wealth to make a positive impact on society. In response, asset managers have
raced to offer investors a wide range of ESG and socially responsible investment strategies to
serve and profit from this growing area.
At the end of 2019, there were over 800 ESG mutual funds and ETFs according to the US SIF
Foundation. Product launches continued to explode in 2020 as BlackRock alone launched 93
new strategies last year. Net flows of $51 billion in 2020 were more than double the total for
2019 and nearly 10 times more than in 2018 according to Morningstar.
While some ESG advocates and assets managers claim a performance advantage for ESG, we
believe the data is inconclusive and it is a mistake to make any blanket assumptions about
whether ESG as a category will outperform or underperform in the future. For this paper, we
assume there is no ESG “alpha” or performance impact, positive or negative, associated with
ESG investing.
Before impact-minded investors decide to put their money into ESG funds, we believe they
should consider the fees associated with ESG strategies and whether these strategies really
represent their personal values.
