ESG Investing: Beyond the Headlines, Performance and Opportunity


Environmental, Social, and Governance (ESG) investing has captured significant investor interest in recent years. However, some skepticism persists, with concerns about returns and a focus on exclusionary practices. This article dives deeper, exploring the data behind ESG performance and highlighting potential opportunities for investors.

ESG: Not a Fad, But Evolving

While ESG may not be dominating headlines like it once did, its influence remains. Preqin’s latest ESG report reveals that 60% of Limited Partners (LPs) surveyed have either turned down promising investments (36%) or would do so (24%) due to ESG concerns. This indicates a growing focus on responsible investing practices, even if the hype has subsided.

Performance Parity: Myth Busting

A common argument against ESG is its perceived negative impact on returns. Preqin’s extensive data, analyzing Internal Rate of Returns (IRRs) for over 11,000 funds, dispels this myth. They found no significant performance difference between ESG and non-ESG funds, with the exception of impact funds. These funds may prioritize positive social or environmental outcomes over pure financial returns.

This finding aligns with investor sentiment. Preqin’s survey found 66% of LPs believe ESG and non-ESG funds deliver similar performance. Interestingly, the data uncovers another potential benefit – lower volatility. Standard deviations for ESG funds sit at 15.0% compared to 24.0% for non-ESG funds. This suggests ESG funds might offer better risk management by mitigating downside risk.

Beyond Exclusion: The “Brown to Green” Opportunity

The conversation surrounding ESG often centers on exclusionary practices, where entire sectors are avoided due to ethical concerns. Preqin highlights an alternative approach – the “brown to green” opportunity. This strategy involves acquiring undervalued, carbon-intensive (“brown”) assets. Investors can then invest in greening these assets, creating both financial gain and a positive environmental impact.

Imagine a scenario where a private equity firm acquires a power plant at a discount due to its high carbon footprint. By investing in renewable energy sources and improving efficiency, they can transform the asset into a greener, more valuable one. This approach leverages Preqin’s data to identify undervalued assets while contributing to the essential transition towards a more sustainable future.


ESG investing has matured beyond its initial hype. While skeptics remain, data suggests ESG funds can offer competitive returns with potentially lower volatility. Additionally, strategies like the “brown to green” opportunity showcase how responsible investing can create financial value while addressing environmental challenges. As ESG continues to evolve, investors who embrace a holistic view stand to benefit from both financial returns and positive societal impact.

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