Talk Vs. Walk: Lessons From Silent Sustainable Investing of Mutual Funds

This study explores actively managed US equity funds and shows investors are attracted by the ESG label rather than the Morningstar sustainability rating. However, this pattern does not necessarily prompt “silent” funds (top sustainability-rated ones without ESG labels) to rebrand themselves as ESG funds due to limited benefits from such rebranding. Furthermore, we find that “silent” funds achieve comparable returns and better mitigate risks than ESG-branded counterparts. This suggests an overreaction by investors towards ESG labels, overshadowing the intrinsic value of sustainability within “silent” funds. The study offers implications for industry and policymakers regarding marketing and defining ESG investing.