Is good performance from ESG funds sustainable?

Here’s a note from Jessica Wirth Strine of Sustainable Governance Partners about this Financial Times article entitled “ESG outperformance narrative ‘is flawed,’ new research shows”:

As a believer that responsible investing will be hard to topple (though those who prefer irresponsible investing will always have options), I’m keen to review what is effectively the null hypothesis. But also have to ask: is ESG performing well because it is (currently) a proxy for Quality, or is Quality performing well because of its overlap with ESG?

And here’s a note from Florian Heeb:

It still pays to invest green – but how long will that last? NYU Stern School of Business and Rockefeller Capital Management have published a new study on the financial performance of ESG investing. While there have been a host of meta-studies with older data, they explicitly focus on recent studies between 2015 and 2020.

Their finding: positive or neutral results on the financial performance of ESG and climate-focused investments still dominate.

Three questions come to my mind:

– How much of this outperformance can be explained by large parts of the markets underestimating the materiality of ESG / climate change?

– How much is driven by enormous inflows into sustainable investment products?

– And, given that a) the integration of ESG and climate risks is becoming mainstream, and b) the enormous growth of sustainable investing will inevitably peak in the near future: How long will the outperformance last?