ESG marketing or ESG rating: Which matters more for funds?

Among the 25 highest ESG-scoring funds within YCharts’ sample, 13 received perfect 10.0 ratings from MSCI, and only two scored below 0.8 on the YCharts Comprehensive ESG Fund Score metric. On average, the best ESG-scoring funds had overall MSCI ESG scores of 9.91, and comprehensive ESG Fund Score of 0.849.

Across the entire fund universe, the average MSCI ESG score was 7.52, and the average score based on YCharts’ comprehensive ESG scoring was 0.582.

Looking at total returns, Alpha and Beta, Sharpe Ratio, and standard deviation of returns, most popular ESG funds appeared to be superior to those with highest ESG scores on average

Across both lists, most of the best-performing funds were found among the most popular (largest by AUM). Based on three- and five-year lookbacks from August 31, 2022, those funds showed greater returns; they were also down less on a year-to-date and year-over year basis.

Looking at their average Sharpe ratio, the most popular ESG-marketed funds outdid those with the highest ESG scores by 0.21. However, they also showed slightly more volatile performance over a three-year period, with a 25.7% SD compared to 22.3% for the better ESG-scoring funds. Across the list of highest-AUM funds in the research, YCharts saw higher year-to-date, 1-year, 3-year, and 5-year annualized returns compared to the highest ESG-scoring funds.