Benoît Mercereau, João Paulo C. C. Sertã, Constance Gavini
{"title":"Promoting Sustainability Using Passive Funds","authors":"Benoît Mercereau, João Paulo C. C. Sertã, Constance Gavini","doi":"10.3905/jii.2019.1.071","DOIUrl":null,"url":null,"abstract":"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","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2019-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"5","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Index Investing","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jii.2019.1.071","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 5
Abstract
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
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