Graphic: ESG’s uncertain future
The use of environmental, social and governance factors to make investment decisions gained steam among institutional investors during the past few years. Some states also adopted policies, such as restricting investments in targeted industries like fossil fuels. However, there's been significant pushback from other states recently. With this divide and an upcoming election, it's unclear how ESG considerations will factor into future investment decisions.
ESG adoption spotty: 39 pension funds were using ESG factors in their portfolio management process, based on responses to P&I's top 1,000 survey. However, 92 said they weren't.
Percentage of funds using ESG
Growing anti-ESG sentiment: Some states have pushed back on using ESG factors. Last year, state legislatures introduced 130 anti-ESG bills, with 29 passing, vs. 32 proposed pro-ESG bills and four that were enacted, according to the law firm Ropes & Gray.
State ESG legislative actions
Slowing investor momentum: In the U.S., the number of new signatories to the United Nations' Principles for Responsible Investment per year has slowed, including 89 last year and 37 this year compared with 107 to 188 per year from 2019 to 2022. Currently, the PRI has over 1,000 signatories.
U.N. PRI signatories added
Favorable risk and return: Over the five-year period ended Sept. 30, the MSCI USA ESG Leaders index outperformed the MSCI USA index by 40 basis points with slightly less volatility.
MSCI USA ESG Leaders vs. MSCI USA
| MSCI USA ESG Leaders index | MSCI USA index | |
|---|---|---|
| 5-year return | 16.3% | 15.9% |
| 5-year volatility | 18.3% | 18.4% |
| 10-year return | 13.2% | 13.3% |
| 10-year volatility | 15.3% | 15.5% |
Largest holdings, MSCI USA ESG Leaders
| Stock | % of index |
|---|---|
| Microsoft | 11.5% |
| NVIDIA | 11.3% |
| Alphabet Class A | 3.7% |
| Alphabet Class C | 3.2% |
| Telsa | 2.8% |
| Eli Lilly | 2.7% |
| Visa | 1.6% |
| Mastercard | 1.5% |
| Procter & Gamble | 1.5% |
| Home Depot | 1.5% |
*Through June. Sources: Pensions & Investments, Ropes & Gray, United Nations, MSCI
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