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Rumi Mahmood

Rumi Mahmood
Vice President, MSCI Research

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Some ESG Funds Are Not Like the Others

  • ESG funds’ holdings can vary significantly, depending on their objectives, methodologies and geographic exposures. We examined the 20 largest ESG equity funds in our coverage universe.
  • Information technology was the largest sector allocation for most of these funds, with almost no allocation to energy. Alphabet Inc. was the most commonly held stock, with an average weight of 1.9%.
  • Despite the overall low allocation to energy, 11 funds both held energy stocks and exhibited a lower carbon intensity than those with no energy exposure.

Investors looking to better align their equity allocations with their overarching investment values will not be surprised to learn that not all ESG funds are the same, and in fact can vary significantly. What did we find when we examined the 20 largest equity ESG funds in our global ESG coverage, focusing on their holdings and their ESG attributes and any other consideration that investors might find important when conducting their ESG-fund due diligence and selection?1


20 Largest ESG Funds Varied by Approach, Age and Domicile

The 20 largest ESG funds that we track held more than USD 150 billion in assets combined, as of Dec. 31, 2020. Collectively, these 20 funds represent approximately 13% of the total assets under management (AUM) globally in ESG equity funds in our coverage universe. Despite their nominal similarities, these ESG funds varied widely in their investment approaches and holdings. Actively managed funds accounted for a slight majority of held assets, holding over 50% of total AUM, while the remaining AUM held by index-based funds were divided evenly between mutual funds and ETFs.

The funds varied widely in tenure and domicile, while the oldest fund is more than 30 years old and the youngest just over five. But two-thirds of total AUM (over USD 100 billion) was held in funds less than 20 years old, and half of them were domiciled in Europe, where ESG adoption has been long established. The geographic market focus of most funds was U.S. equities, however. (See the exhibit below for detail.)


How the 20 Largest ESG Equity Funds Break Down

#NameAUM USD BillionInceptionDomicileGeographic FocusFund TypeMSCI ESG RatingPeer Percentile Rank
1Parnassus Core Equity Fund22.941992U.S.U.S.Active Mutual FundA83rd
2iShares ESG Aware MSCI USA ETF13.032016U.S.U.S.ETFA82nd

Vanguard FTSE Social Index Fund

10.872000U.S.U.S.Index FundBBB41st
4Stewart Investors Asia Pacific Leaders Sustainability Fund9.872003U.K.Pacific ex JapanActive Mutual FundA61st
5Vontobel Fund - mtx Sustainable Emerging Markets Leaders9.582011LuxembourgEmerging MarketsActive Mutual FundA81st
6Northern Trust World Custom ESG Equity Index8.692013IrelandGlobalIndex FundA35th
7Pictet - Global Environmental Opportunities8.312010LuxembourgGlobalActive Mutual FundAA89th
8Pictet - Water8.022000LuxembourgGlobalActive Mutual FundAA-
9KLP AksjeGlobal Indeks I7.692004NorwayGlobalIndex FundA31st
10Nordea 1 - Global Climate and Environment7.372008LuxembourgGlobalActive Mutual FundAA89th
11Parnassus Mid-Cap Fund6.902005U.S.U.S.Active Mutual FundA98th
12iShares ESG Aware MSCI EM ETF6.832016U.S.Emerging MarketsETFA98th
13iShares Global Clean Energy UCITS ETF6.522007IrelandGlobalETFA45th
14iShares Global Clean Energy ETF6.512008U.S.GlobalETFA45th
15Nordea 1 - Emerging Stars Equity Fund6.412011LuxembourgEmerging MarketsActive Mutual FundA87th
16TIAA-CREF Social Choice Equity Fund6.321999U.S.U.S.Index FundA86th
17Handelsbanken Hallbar Energi5.852014SwedenGlobalActive Mutual FundA77th
18Putnam Sustainable Leaders Fund5.811990U.S.U.S.Active Mutual FundA92nd


20Calvert Equity Fund


1987U.S.U.S.Active Mutual FundA95th


The right-hand column shows the percentile rank of the fund within its peer group and within the global universe of funds in the MSCI coverage universe. Data as of Dec. 31, 2020. Source: Broadridge, MSCI ESG Research


Sector Exposure and Positioning

Information technology was the largest allocation in most funds, with an almost zero allocation to energy (see exhibit below). This sector-based exposure was one of the key drivers behind the recent short-term outperformance of many ESG funds relative to their non-ESG counterparts, as tech stocks rallied in 2020 while energy declined.

ESG Funds Were Mostly Overweight Tech and Underweight Energy

Fund Type NameCommunication ServicesConsumer DiscretionaryConsumer StaplesEnergyFinancialsHealth CareIndustrialsInformation TechnologyMaterialsReal EstateUtilities
Active Mutual FundParnassus Core Equity11.
ETFiShares ESG Aware MSCI USA ETF10.
Index FundVanguard FTSE Social Index12.613.
Active Mutual FundStewart Investors APAC Leaders Sust2.64.620.
Active Mutual FundVontobel - mtx Sustainable EM Leaders14.
Index FundNorthern Trust World Custom ESG Equity8.
Active Mutual FundPictet - Global Environmental Opportunities0.
Active Mutual FundPictet - Water0.
Index FundKLP AksjeGlobal Indeks I10.712.
Active Mutual FundNordea 1 - Global Climate and Environment0.
Active Mutual FundParnassus Mid-Cap Fund3.
ETFiShares ESG Aware MSCI EM ETF10.817.
ETFiShares Global Clean Energy UCITS ETF0.
ETFiShares Global Clean Energy ETF0.
Active Mutual FundNordea 1 - Emerging Stars Equity11.620.
Index FundTIAA-CREF Social Choice Equity9.
Active Mutual FundHandelsbanken Hallbar Energi0.
Active Mutual FundPutnam Sustainable Leaders1.
ETFiShares MSCI USA SRI UCITS ETF5.919.110.60.712.616.611.614.
Active Mutual FundCalvert Equity5.412.



Holdings as reported on Dec. 31, 2020. Source: Source: Broadridge, MSCI ESG Research

Alphabet Inc., the parent company of Google, was the most commonly held stock across most funds — the stock was in 12 funds, with an average weight of 1.9% — followed by Ecolab Inc., Thermo Fisher Scientific Inc. and Microsoft Corp. The companies with the highest average weights were Apple Inc. (5.6%) and Microsoft (5.0%); the market return of these firms was 30% and 41%, respectively, in 2020. The most commonly held IT stocks were Microsoft (nine funds), followed by Applied Materials Inc. and Cadence Design Systems Inc. (eight funds each). The concentration of fund investment in these sectors has had significant impact on the recent outperformance of ESG-related funds.

Despite the general absence of energy exposure in our 20 largest ESG funds, some (especially ETFs) did have minor allocations to energy stocks. Why? Because index methodology matters, and different indexes provide investors with diverse investment choices.


Carbon Intensity

Among the funds in our analysis that did not hold any energy stocks, most were actively managed; meanwhile, most that did hold energy were index-based funds. But how does that reconcile with real-world carbon emissions? The energy sector tends to score poorly on environmental issues, meaning that funds with energy exposure might have heightened exposure to pollutive companies or higher carbon intensity. Holdings alone do not provide the full picture, however; in fact, there were funds that did not have any energy stocks but exhibited a substantially higher carbon intensity than those that did.


Funds’ Weighted-Average Carbon Intensity vs. Holdings

Funds’ Weighted-Average Carbon Intensity vs. Holdings

Data as of Dec. 31, 2020. Source: MSCI ESG Research

The ESG fund universe is anything but uniform. The largest of these funds very much reflect the spectrum of investors’ choice and preferences, active and index-based approaches, degree of ESG integration and screens based on values and thematics. They highlight the fact that there is no one way to invest sustainably, as well as demonstrate clearly that different investors may be at different stages in their ESG journey and that their preferences can be quite diverse. A solid understanding of fund ESG policies can be essential in helping investors make the most of their fund decisions.



1Within MSCI ESG Research’s universe of 4,087 Equity funds that incorporate ESG factors, as of Dec. 31, 2020.



Further Reading

Fund ESG Transparency: Quarterly Report 2021

ESG Fund Ratings

Deconstructing ESG Ratings Performance: Risk and Return for E, S and G by Time Horizon, Sector and Weighting