When companies take positive environmental, social and governance (ESG) steps, they attract asset flows from fund managers, according to new research. But the price spikes from those flows may not result in outperformance for long-term investors.

With the dramatic growth in demand from investors for sustainable investing strategies, incorporating ESG information into investment decisions has become increasingly important for asset managers. For example, Samuel Hartzmark and Abigail Sussman, authors of the 2019 study,

“Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows,” found that mutual fund investors collectively put a positive value on ESG and that funds with the highest ESG ratings attract more flows. Thus, to attract cash flows, fund managers will incorporate ESG information into their portfolios in a timely manner. In addition, it seems likely that doing so would be perceived by investors as an indicator of investment skill.