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ESG's Impact on Returns 'Virtually Nonexistent'

Environmental, social and governance considerations have a “virtually nonexistent” impact on the performance of cap-weighted ETFs, new research shows.

Critics of ESG investing have claimed that considering such factors detracts from a fund’s performance. However, since 2019, the performance of the $380.1 billion SPDR S&P 500 ETF has been largely in line with the performances of the ve largest ESG ETFs, research from Research A liates shows.

The ESG ETFs examined were the $14.2 billion iShares ESG Aware MSCI USA, $7.2 billon iShares ESG Aware MSCI EAFE, $6.1 billion Vanguard ESG U.S. Stock, $4.9 billion iShares Global Clean Energy and $4.4 billion iShares ESG Aware MSCI EM ETFs.

“I don’t think that just by picking stocks that have high ESG ratings, you should expect to outperform or underperform,” said Ari Polychronopoulos, Research A liates’ head of product management and ESG. “Really what’s driving the performance of your strategy is the underlying portfolio construction approach. When you use that broad ESG rating, and you overlay that on top of the cap-weighted index, you should expect to get around about the same as the cap-weighted index.”

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