Abstract
The study investigated the impact of sustainability on financial performance of collective investments funds in South Africa with emphasis on the ESG focus and ESG ranking. Despite the rapid expansion of sustainability-labelled products in South Africa’s collective investment industry, there remains limited empirical evidence on whether ESG orientation enhances or detracts from financial performance from an emerging-market context. A causal-comparative and longitudinal design was adopted using monthly secondary data for eight funds split equally between ESG focused funds and conventional non-ESG funds over the period March 2021 to July 2025. Data on returns and ESG rankings were sourced from Refinitiv Eikon while benchmark, risk-free rate, and inflation figures were obtained from the South African Reserve Bank. Data was analysed through descriptive statistics, trend and correlation analysis, and five risk-adjusted return measures. Independent samples t-tests and Mann-Whitney U tests were applied to assess differences between ESG and non-ESG funds while OLS regression was used to evaluate the impact of ESG quality rankings on fund performance. Findings showed no clear evidence that sustainability focused collective investment funds outperformed non-ESG funds on a risk-adjusted basis. Instead, the two categories of funds produced mixed results showing outperformance and underperformance of the benchmark on both sides. Independent t-tests and Mann-Whitney U tests found no significant differences between ESG and non-ESG funds across risk-adjusted measures. In regressions restricted to ESG funds or non-ESG funds, ESG ranking was not a significant determinant of fund returns. However, for the combined regression, ESG ranking was found to be negative and significant, implying that higher ESG scores were associated with lower fund returns. On examination on whether ESG classification or categorisation had any impact on fund performance the measure of ESG categorisation, was insignificant showing that classification as an ESG fund had no impact on performance on fund performance. From a theoretical and practical perspective, the results suggest that investors should not rely solely on ESG labels when evaluating fund performance but should focus instead on underlying ESG quality and portfolio characteristics.