Question 1

What is an ESG fund?

Accepted Answer

ESG (Environmental, Social, Governance) funds invest in companies meeting specific sustainability criteria. They exclude companies involved in tobacco, weapons, fossil fuels, etc., and prioritize those with strong environmental practices, social responsibility, and good corporate governance. ESG funds let you align investments with your values.

Question 2

Do ESG funds underperform regular index funds?

Accepted Answer

Research shows mixed results. Some ESG funds match or outperform regular indices, especially long-term, as sustainable companies often have better risk management. However, ESG funds typically have higher expense ratios (0.5-1% higher) and may miss high-performing companies excluded by ESG criteria. Performance varies significantly by fund.

Question 3

Are ESG funds riskier than regular funds?

Accepted Answer

Not necessarily. ESG funds may have lower concentration risk in controversial sectors, potentially reducing long-term regulatory and reputational risks. However, they have higher tracking error versus broad indices due to sector exclusions. The key risk is paying higher fees for funds that may not consistently outperform.

Question 4

What are ESG screening criteria?

Accepted Answer

ESG funds use negative screening (excluding tobacco, weapons, coal, etc.) and positive screening (selecting companies with strong ESG ratings). Criteria include carbon footprint, renewable energy use, labor practices, board diversity, shareholder rights, and anti-corruption policies. Each fund has unique ESG methodology.

Question 5

Should I invest in ESG funds or regular index funds?

Accepted Answer

Choose ESG if values alignment is important and you're willing to accept potentially higher costs and tracking error. Choose regular index funds for maximum diversification and lowest costs. A middle path: allocate 70-80% to low-cost index funds and 20-30% to ESG funds if values matter to you.

ESG vs Standard Index Fund

Comparison Results

Growth Comparison

The Numbers

Our Take

Year-by-Year Breakdown

Understanding ESG Investing

What is ESG?

The Performance Debate

How to Use This Calculator