The Compliance of ESG Equity Funds in the U.S.

Authors : Gerasımos ROMPOTIS

Pages : 31-48

Doi:10.54821/uiecd.1258344

View : 10 | Download : 9

Publication Date : 2023-03-31

Article Type : Research Paper

Abstract :This paper assesses the level of adherence of the U.S. equity index funds to best practices from an Environmental, Social and Governance insert ignore into journalissuearticles values(ESG); perspective. The sample includes 27 ESG index funds and the study period spans from 1 August 2017 to 31 July 2022. A simple research approach is employed. First, the correlations of index funds with the S&P 500 Index, as well as, with three alternative broad market ESG indexes, are computed. Corresponding betas are estimated too. Then, the portion of the S&P 500 stocks with severe or high Morningstar ESG risk scores held by each fund is calculated. The findings reveal an average correlation of ESG index funds with the S&P 500 Index of 0.90. Similar correlation figures with the other indexes are computed. Betas with all indexes are very high, approximating unity. Moreover, about 26% of the funds invest more than 5% of their assets in S&P 500 stocks with high or severe ESG risk. The findings combined indicate that, to a large extent, ESG index funds just track the S&P 500 Index, while marketing themselves as being ESG compliant. The latter can be indicative of some level of “greenwashing” on behalf of index funds.
Keywords : Endeks Fonları, ESG, Greenwashing, S P 500 Endeksi