ESG Investors Have Ethical Motives. They Also Expect to Outperform the Market.
A new study from the National Bureau of Economic Research examining attitudes and expectations about ESG investing found evidence suggesting that many investors who own ESG stakes expect those investments to outperform the U.S. stock market. By the end of 2022, open-end funds and exchange-traded funds with a focus on sustainability had more than $2.5 trillion in global assets under management, up from more than $559 billion at the end of 2017, according to Morningstar Direct. The study’s authors analyzed a survey that Vanguard sent to U.S.-based clients every two months between June 2021 and December 2022. Among all respondents, 45% saw no reason to invest in ESG and generally expected such investments to underperform the market. Twenty-five percent reported that ethical considerations were or would be the primary motive to invest in ESG, and as a group they predicted the investments would underperform the market by 0.8 percentage point a year, on average, over the next 10 years. Twenty-two percent cited hedging against climate risks as the primary motive, and they, too, expected market underperformance. Respondents as a whole, on average, expected the 10-year return on ESG investments to underperform the market by about 1.4 percentage points per year. Only about 3.5% of all respondents owned any ESG-focused funds. But on average, these respondents expected the 10-year return on the investments to outperform the market by nearly 0.3 percentage point a year.
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