Do ESG mutual funds deliver superior performance? Evidence from sustainable investing in the Indian emerging market

The rising trend of sustainable investing and the increasing incorporation of Environmental, Social and Governance (ESG) criteria into financial decisions have necessitated an assessment of ESG mutual funds’ performance in India. There is limited empirical evidence on whether ESG funds deliver better risk-adjusted returns and the impact of ESG rankings and expense ratios on fund performance. The study employs a quantitative research method to analyze the monthly return data of the ESG mutual funds in India from 2021 to 2025. Risk-adjusted performance measures like the Sharpe, Treynor, Jensen’s alpha and Sortino ratios are used to rank the funds. The funds are compared with the Nifty 50 index and the Fama-French 3-factor model is used to analyze the impact of market, size and value factors on returns. Furthermore, a cross-country Granger Causality test examines the direction of causality between ESG and traditional market indexes in emerging markets. The findings state that the returns of ESG funds are positively correlated with the returns of the benchmark indices and the higher the ESG ranking, the better the fund’s performance, with least effect from expense ratios. The Fama-French analysis indicates that ESG funds did not generate positive abnormal returns over this period. Remarkably, the Granger causality is one-way from ESG to market indices in India, which is attributed to the regulatory framework in the country.