This paper assesses the effectiveness of ESG engagement by mutual funds in mitigating environmental impact and addressing climate change. Using quarterly data from 1,600 US mutual funds over 2019–2022, we compare the behavior of funds claiming ESG commitment with those that do not. We analyze their voting patterns on environmental and climate-related resolutions and evaluate their actual contribution to reducing carbon emissions. Results show that activist ESG funds generally align with their stated sustainability goals. Notably, this orientation does not harm financial performance. However, a significant presence of greenwashing among self-declared ESG funds is also identified.
We analyze a panel of 1,600 US mutual funds from 2019 to 2022 using ESG engagement and voting data from Morningstar Direct. Funds are classified based on self-declared ESG commitment and voting behavior on climate-related resolutions. We compare environmental impact through carbon risk metrics and examine greenwashing practices. Additionally, we assess financial performance via net returns, Sharpe ratio and alpha. This dual analysis allows us to explore whether ESG activist funds align with their stated goals and whether sustainability orientation affects financial outcomes. Our study contributes to the scarce empirical evidence on ESG engagement, environmental effectiveness and greenwashing in mutual funds.
Our results show that mutual funds declaring ESG engagement tend to vote more frequently in favor of climate and environmental proposals and hold portfolios with lower carbon risk. These funds exhibit better environmental performance over time compared to non-engaged peers. Financially, ESG activist funds attract higher net flows and perform similarly in terms of returns, Sharpe ratio and alpha. However, we also detect widespread greenwashing: several funds claim ESG engagement but do not consistently support environmental resolutions. This inconsistency raises concerns about the credibility of self-labeled ESG funds and underscores the need for more robust oversight and transparency.
This paper provides novel empirical evidence on the effectiveness of ESG engagement by mutual funds in addressing climate-related challenges. Unlike prior studies focused on general ESG funds, we specifically examine funds that self-identify as active in engagement and voting. By linking voting behavior to environmental outcomes and fund performance, we offer insights into the credibility and impact of ESG activism. Moreover, we are among the first to assess greenwashing within this specific category, revealing inconsistencies between declared ESG intentions and actual practices. These findings have implications for investors, regulators and the design of sustainable finance policies.
