Environmental, social, and governance investing (2024)

We currently offer seven ESG products, including four exclusionary index funds and three active funds.

For investors who want to limit exposure to certain industries or business activities that pose heightened ESG-related risks or conflict with their preferences, we offer index products that limit or avoid exposure to specific industries such as firearms, tobacco, or fossil fuels.

We also offer active ESG strategies in which managers seek to generate excess return by allocating capital toward companies that meet certain ESG criteria. This may include companies demonstrating leading ESG practices, showcasing improvements on ESG dimensions, or delivering a positive social and/or environmental impact.

Environmental, social, and governance investing (2024)


How well has Environmental, Social, and Governance investing performed? ›

ESG funds have ranked near the middle of their peer groups

A fund that ranks in the 1st percentile for a three-year period has done better than all of the other funds like it over that time, while a fund that ranks in the 100th percentile has done the worst of all of its peers.

Is it worth investing in ESG funds? ›

Fortunately, your financial plan may better support your ethical priorities if you focus on ESG investments. So, if environmental and social responsibility are important to you, ESG investments could be worth pursuing in the coming years, even if the returns are slightly lower than other investments.

What is ESG investing summary? ›

This type of ethical investing strategy helps people align investment choices with personal values. ESG stands for environment, social and governance. ESG investors aim to buy the shares of companies that have demonstrated a willingness to improve their performance in these three areas.

What are the arguments against ESG investing? ›

Critics of ESG — such as a group of Republican states that banned Blackrock and other “ESG friendly” asset managers from their state pension plans — argue that considering environmental and social factors violates the fiduciary duty that asset managers have towards their clients.

Why is ESG investing so popular? ›

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

Is ESG actually effective? ›

Cost reductions ESG can also reduce costs substantially. Among other advantages, executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 percent.

Why are ESG funds underperforming? ›

Missing out on returns from the so-called "Magnificent Seven" tech stocks was one of the biggest reasons for underperformance. Meta, Alphabet, Tesla and Amazon were all excluded from certain ESG indexes due to ESG controversies or because they had a high ESG risk relative to others in their sector.

What are the pros and cons of ESG investment? ›

Pros and cons of ESG investing
Can help investors diversify their portfolioESG funds may carry higher than average expense ratios
May reduce portfolio riskESG investing is still a fairly new concept and there isn't a ton of reporting on performance
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Oct 20, 2022

Is ESG investing still popular? ›

Following a three-year craze for investment products focused on environmental, social and corporate-governance concerns, the percentage of newly created funds in the U.S. and Europe with ESG in their name has fallen from a peak of 8.3% to just 3.3%, according to an analysis of quarterly data by Morningstar Direct.

What is ESG in simple words? ›

ESG means using Environmental, Social and Governance factors to assess the sustainability of companies and countries. These three factors are seen as best embodying the three major challenges facing corporations and wider society, now encompassing climate change, human rights and adherence to laws.

What is ESG for dummies? ›

What is ESG explained in simple terms? ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate a company's sustainability and ethical impact.

Who is behind ESG? ›

The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).

Why do people not like ESG? ›

Some opponents also believe that ESG investing is politically motivated and could lead to biased investment decisions.” In a line used by proponents, those in opposition to the ESG movement also believe there is substantial support behind them.

Why ESG investing doesn't work? ›

For example, ESG factors rarely focus on assigning social or environmental value to the products and services that the 'paper mills' produce; it's squarely about how the businesses are run - which makes values-based screening and impact-linked revenue streams out of scope - and arguments about a company with 'good' or ...

Why is ESG so controversial? ›

One of the biggest criticisms of ESG is that it perpetuates what it was partly designed to stop – greenwashing.

How much has ESG investing grown? ›

ESG-focused institutional investment seen soaring 84% to US$33.9 trillion in 2026, making up 21.5% of assets under management: PwC report. Jakarta, 22 December 2022 - Asset managers globally are expected to increase their ESG-related assets under management (AuM) to US$33.9tn by 2026, from US$18.4tn in 2021.

What is the rate of return on ESG investments? ›

Globally, ESG Leaders earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by Laggard companies. This represents an approximately 50% premium in terms of relative performance by top-rated ESG companies.

Do ESG funds have high returns? ›

The bottom line is that ESG leaders tend to be more profitable and generate above-average returns, providing opportunities for more cash to be returned to shareholders over time. As seen in the performance chart, companies with higher ESG ratings outperformed those with lower ESG ratings.


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