The Performance Sacrifice Facing ESG Investors

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This article originally appeared on ETF.COM here.

Equity strategies that target environmental, social and governance (ESG) issues consider not just their stock returns but the effects their investments have on other stakeholders, such as employees and individuals affected by the environmental decisions of those firms. ESG strategies have exploded in popularity.

As of October 2018, assets tied to ESG products stood at about $12 trillion. That’s an increase of 38% from $8.7 trillion in 2016. In the U.S., ESG now accounts for about 25% of professionally managed assets.

The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends cited this surge in client demand as the reason asset managers are increasingly looking to integrate ESG into their offerings in some form. Leading index providers have been creating investable indices for the investment community.

Concurrently, the market for proprietary ESG scoring of stocks has grown. Many prominent data vendors now provide coverage on stocks from an ESG lens in some form.

MSCI’s ESG benchmarks

One of the leading providers of indices, MSCI, now has several ESG indices. As stated on its website, “Indexes are designed to support common approaches to ESG investing, and help institutional investors more effectively benchmark to ESG investment performance as well as manage, measure and report on ESG mandates.”