We systematically anatomize ESG funds’ selection, by comparing them to an “optimal portfolio” benchmark rather than average non-ESG peers. We show that ESG funds “walk the talk” by selecting portfolios with a significant 36% less absolute emission, but with (i) minimal holding deviation and thus little outperformance on other ESG or financial measures and (ii) limited impact on most firms’ ESG improvement or cost of capital: Over 90% of the emission reduction is achieved by selectively eliminating the 2% holdings comprising the top 25 highest-emitting companies; Excluding these top emitters, ESG funds fail to differ from their benchmarks. Perhaps surprisingly, ESG active funds select more by de-weighting the brownest industries, whereas ESG index funds select more by de-weighting the brownest firms within each industry. Although emission reductions are achieved without compromising risk profiles based on standard factors, ESG funds are significantly less effective as a hedge against some macroeconomic risk factors, such as energy-driven inflation.