Are All ESG Funds Created Equal? Only Some Funds Are Committed

ESG funds are not all equal: there is significant heterogeneity in incentives of fund managers to engage with portfolio firms. We argue that differences in incentives affect ESG-related information acquisition, investment strategies, engagement activities, and impact of ESG funds. Our findings support these predictions. Conditional on similarly large ESG investments, those funds with higher incentives to engage with portfolio firms, which we refer to as committed ESG funds, differ significantly from other ESG funds along each of these dimensions. Moreover, committed ESG funds have outperformed other ESG funds on their ESG holdings, particularly those with longer duration. Our findings highlight that committed ESG funds view ESG as a value driver.