This paper considers the extent, and resolution, of agency
conflicts in applying the Environment, Social and Governance (ESG) criteria and
associated gatekeeping expectations to mutual funds. Drawing on the agency
theory, the paper demonstrates that the manifestation of principal-agent and
principal-principal-agent conflicts can erode mutual funds’ gatekeeping role
encapsulated in ESG. Agency conflicts can be resolved by clear definitions of
ESG in investment objectives, chief sustainability officer roles, investment
diversification and categorisation, credible assurance services and investor
education