A new study found that while ESG investors are motivated by ethical concerns, some of them also expect those investments to outperform the U.S. stock market, writes Daisy Maxey for The Wall Street Journal.

The paper that examines attitudes and expectations about environmental, social, and corporate-governance investing was written by researchers at Yale University, Stanford University, New York University, and The Wharton School of the University of Pennsylvania, along with an investment strategist at Vanguard. It was published by the National Bureau of Economic Research in April.

Proponents of ESG investing believe that such investments contribute toward socially valuable goals, including environmental protection and sustainability. Meanwhile, critics argue that investing money based on ESG agendas may not bring in the best returns as it limits the pool of potential investments.

The study analyzed the results of a Vanguard survey that was sent to U.S.-based clients every two months between June 2021 and December 2022. Each time, there were around 2,000 respondents.

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Around 45 of the respondents saw no reason to make ESG investments and expected to see these investments underperform the market. Twenty-five percent said ethical considerations were or would be their primary motive to invest in ESG, but as a group, they believed that the investments would underperform the market by around 0.8 percent per year over the next 10 years. For 22 percent, the primary motive was hedging against climate risks, but they also expected market underperformance.

However, seven percent listed profit expectations as the primary motivation for ESG investing. They believe that ESG investments will outperform the market by 1.4 percentage points per year over the next 10 years.

“Investors who report higher expected returns from ESG investments hold a higher share of ESG funds in their portfolios,” the study concluded.

Read more about ESG investments in The Wall Street Journal.

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