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ESG ETFs fail to shine over past 10 years

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By illuminem briefings

· 2 min read

illuminem summarizes for you the essential news of the day. Read the full piece on The Financial Times or enjoy below

🗞️ Driving the News: Scientific Beta’s study reveals that Exchange Traded Funds (ETFs) based on Environmental, Social, and Governance (ESG) criteria haven’t outperformed the market in the last decade

🔭 The Context: This analysis challenges the prevailing notions about ESG investing's financial supremacy by assessing actual performance data
• The study, considering real-world data from 2012 to 2022, indicates a slight underperformance of ESG ETFs compared to their traditional counterparts, contradicting prevalent beliefs and the 2020 statistical outlier of ESG’s superior performance

🌍 Why it Matters for the Planet: The analysis is crucial as it throws light on the actual environmental impact efficacy and financial performance of sustainable investments
• While ESG funds demonstrate significant deviation from mainstream indices, the deviation hasn’t resulted in the selection of more environmentally efficacious companies or superior financial performance

⏭️ What’s Next: The growing interest in and importance of ESG investing necessitates continuous and critical analysis to refine investment strategies and realize environmental goals
• Investors and fund managers might need to reevaluate and modify their strategies to genuinely impact sustainability and yield better financial returns

💬 One Quote: “Quite often it’s suggested there should be some outperformance. [People say] ‘they are better businesses, they are going to generate higher returns’. That’s clearly not something we see in the data” (Felix Goltz, Research Director at Scientific Beta)

📈 One Stat: ESG ETFs, with assets of $97.6 billion at the end of 2022, displayed an average annual underperformance of 0.2 percentage points compared to non-ESG ETFs, emphasizing the need for a more accurate perspective on ESG investing outcomes

Click for more news covering the latest on sustainable finance

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