Just 7% of thematic funds incorporate ESG criteria, research suggests Investment WeekJust 7% of thematic funds incorporate ESG criteria, research suggests Investment WeekJust 7% of thematic funds incorporate ESG criteria, research suggests Investment Week
Impact Investing Forum 2023
London. Dec 05-06, 2023.
Thematic funds have experienced strong inflows over four years, with assets quadrupling from less that $150bn in 2017 and more than $600bn by August 2021. However, only 7% of them are estimated to be incorporating ESG into stock selection or index construction according to the index provider.
Thematic funds that invest in the energy transition, broad-based, and technology themes together account for more than $180bn (or 30%) of total thematic assets.
Rumi Mahmood (senior associate in ESG fund research, author of the report), stated that the highest ESG ratings were given to funds that are focused on energy transition, resource management, and cloud computing.
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Mahmood stated that energy transition funds had the highest carbon intensities despite this. They showed an average range in moderate to very high intensities due to exposure to a combination subsectors that facilitate carbon transition, such as utilities and energy companies.
This category also had the highest average exposure to sustainable impact solutions, with funds in this category having the highest average revenue.
The report showed that the carbon intensity of the themes is often dependent on the sub-industry exposures.
Globally, most technology-focused funds had a low carbon intensity. Subsectors like cybersecurity, cloud computing, and fintech experienced the lowest levels.
According to the study on ESG fund transparency, technology funds were the leaders with more than 50% of them displaying an A rating.
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The lowest average rating was for funds that are politically themed, which include funds that have ideological mandates tied to weapons and fossil fuels.
Mahmood stated that thematic shifts affect every aspect of our lives, from the growing digital economy to smart city and the food revolution to efficient and disruptive technology.
“It is crucial that investors understand their exposure to these trends when they build portfolios and make decisions about future strategies, especially since ESG integration will become a core component in portfolio construction.
“It is important to note that macroeconomic, geopolitical, and technological trends are not short term swings — they are long-term structural, transformative shifts. These themes’ ESG attributes may naturally change over time.
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Out of an estimated 1,400, there were more than 1,130 thematic funds in MSCI ESG Research’s coverage as of August.
These were broken down into 26 different categories in the report to group the universe. Funds were evaluated based on their theme focus and intent with the aim of being able compare ESG attributes across themes.
A high-level classification was created based on distinct theme focus, fund intent, and the goal of being capable of comparing ESG attributes across themes.