Sektory a témata
ESG and Sustainable Investing: What It Really Means and Where the Limits Are
Key takeaways
- ESG evaluates companies on environmental (E), social (S) and governance (G) criteria — but each rating measures something slightly different.
- Different rating agencies assign the same company different ESG scores: consistency is not guaranteed.
- ESG ETFs do not automatically exclude fossil fuels — it depends on the specific fund's methodology.
- A higher ESG score does not necessarily mean higher returns or lower risk — the evidence is mixed.
- Critical analysis of an ESG fund: what exactly does it exclude, what index does it track and how does it differ from the non-ESG version?
ESG (Environmental, Social, Governance) is a framework for evaluating companies by their environmental impact, social responsibility and quality of governance — but it is not a uniform standard and different funds interpret it very differently.
What E, S and G specifically mean
- E (Environmental): CO₂ emissions, water and energy consumption, waste management, climate exposure
- S (Social): working conditions, safety, diversity, supply chain
- G (Governance): board composition, transparency, anti-corruption measures, executive compensation
The problem: each rating agency (MSCI, Sustainalytics, Bloomberg) measures these criteria differently. One agency rates a company "AAA ESG" while another gives it an average score. The correlation between major rating systems is surprisingly low.
ESG ETF: what the fund actually does
An "ESG ETF" is a marketing term behind which lie very different methodologies. A fund may:
- Simply exclude weapons and tobacco, otherwise copying a broad-market index
- Actively select companies with the best ESG score in each sector (best-in-class)
- Track a specially constructed ESG index with low emissions
- Combine multiple approaches and add activist voting
Fossil fuel companies can therefore appear in an "ESG" fund if they are the "best" in their sector by score. Read the prospectus, not just the marketing name.
Returns vs. values: what the research says
Empirical evidence on whether ESG delivers better returns is mixed. Some studies show slightly higher performance over certain periods, others find no significant difference. What is clear: ESG ETFs tend to be somewhat more expensive (higher TER) and the portfolio is structured differently from a classic broad-market fund. For an overview of the approach to selecting ETFs without an ideological frame see the ETF Navigator. The topic of greenwashing — how to distinguish genuinely sustainable funds from those that merely look green — is discussed in greenwashing in ESG funds.
FAQ
What does ESG investing mean?
ESG evaluates companies on environmental, social and governance criteria. Investors can then select or tilt towards companies with a better score. There is no uniform standard, however, and different agencies measure ESG differently.
Are ESG ETFs more profitable?
The evidence is mixed. In some periods ESG strategies marginally outperform the market, in others they lag behind. The ESG approach is not a reliable strategy for boosting returns — for many investors it is more of a values-based choice.
Does an ESG fund have to exclude fossil fuels?
It does not. It depends on the methodology. Best-in-class ESG can include oil companies if they score best in their sector. If you want a fund without fossil fuels, look explicitly for exclusion-based or Paris-aligned ETFs.