Drivers of differences in performance of ESG-focused funds relative to their underlying benchmarks

Iraj J. Fooladi and Gregory Hebb

Global Finance Journal, 2023, vol. 56, issue C

Abstract: Several studies have examined whether environmental, social, and governance (ESG) focused funds outperform their benchmarks. While these studies vary in their methods and scope, their findings indicate that, at a minimum, these funds do not underperform their benchmarks on a risk-adjusted basis. This study is designed to further contribute to this body of research by analyzing the performance of the Jantzi Social Index (JSI) relative to its underlying benchmark, the TSX 60, and to gain insight into the possible factors that drive their performance differences. Our findings indicate that JSI's performance differential is driven (primarily) by the higher weight that JSI attaches to companies with higher net ESG scores and not (necessarily) by its superior asset-selection ability. As the regulators globally move toward making ESG disclosure mandatory, these findings become particularly relevant.

Keywords: Socially responsible investing; Investment performance (search for similar items in EconPapers)
JEL-codes: G11 G19 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:56:y:2023:i:c:s1044028322000473

DOI: 10.1016/j.gfj.2022.100745

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