RT Journal Article
SR Electronic
T1 Promoting Sustainability Using Passive Funds
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 43
OP 62
DO 10.3905/jii.2019.1.071
VO 10
IS 2
A1 Benoît Mercereau
A1 João Paulo C.C. Sertã
A1 Constance Gavini
YR 2019
UL https://pm-research.com/content/10/2/43.abstract
AB Sustainable index funds are becoming mainstream. A natural question is how well these funds promote sustainability. They can do so in two ways: by influencing firms’ cost of capital; and by voting and engaging management. Both work empirically. Moreover, promoting ESG creates financial value for shareholders. How well sustainable index funds use these two promotion levers varies a lot, though. For example, 37% of sustainable index funds have a lower ESG score than their non-ESG benchmark. Only 16% perform more than a simple negative screening and go beyond specific themes while improving ESG scores by at least 5% and avoiding derivatives. The number and sophistication of sustainable index funds should continue to grow. Frameworks for analyzing them are therefore timely.TOPICS: ESG investing, mutual funds/passive investing/indexing, performance measurement