ESG fund scores in UK SRI and conventional pension funds: Are the ESG concerns of the SRI niche affecting the conventional mainstream?

This paper analyses the increasing practice of considering environmental, social, and governance (ESG) factors by conventional pension funds. We study whether the SRI (Social Responsible Investing) concerns are affecting traditional management. In an initial sample of 22 SRI and 221 conventional UK domestic equity pension funds from 2016 to 2018, we apply the nearest-neighbour matching to account for fund-characteristic differences, selecting 20 matched conventional funds. We then analyse the influence of fund characteristics on ESG fund scores, and the ESG-score impact on performance and flows with linear models. Our results show that the ESG scores of conventional and SRI funds are influenced by some common characteristics (age/turnover and expenses negatively/positively influence ESG scores), which are consistent with SRI features. Additionally, a higher ESG screening intensity provides greater return and larger flows. Nonetheless, SRI funds do not lose their identity, positively influencing into ESG scores to a greater extent and outperforming.