The top ESG stocks of investors and investment firms are full of surprises

While there is no doubt that investors have embraced ESG (environmental, social and governance) investing, their knowledge of the companies and asset managers exposed to it shows that investors could use more research and best ESG selection tools.

According to a recent survey by Investopedia and Treehugger, many investors admit that when it comes to researching companies and their ESG impact, they do well. The most common signal to investors that an investment aligns with their ESG criteria is that the company is generally perceived as “better” than its industry peers when it comes to ESG initiatives. Most do not use ESG equity screeners or ESG dashboards from financial services or equity research providers.

The primary way ESG investors surveyed apply ESG criteria to their investment decisions is by investing in individual companies and excluding sectors from their portfolio. 45% say they have invested in a company or fund, while 29% say they have divested or sold for ESG-related reasons.

The ESG winner is… Tesla

From a list of top US companies known for their ESG initiatives or alignment, Tesla emerged as the leader of the pack, with nearly a third of survey respondents identifying Tesla as being closely aligned with ESG values. Just over a third responded that none of the companies seemed closely aligned with ESG standards.

While electric vehicle maker Tesla may be associated with some environmental aspects of ESG, its overall rating on ESG filters like Sustainalytics and MSCI is average. In fact, Sustainalytics, an ESG and impact investing data and research firm, classifies Tesla as a “high risk” exposure across multiple ESG criteria. MSCI ranks Tesla among the industry leaders in “clean technology” and “corporate behavior”, but also indicates that Tesla lags behind its industry peers in its “work management”.

Meanwhile, Apple, the second most popular choice among ESG-related companies with 30% of survey respondents, has a slightly better ESG rating by both Sustainalytics and MSCI. Sustainalytics suggests that the iPhone maker has low risk of ESG-related exposure and that its management team effectively manages ESG risk. MSCI, on the other hand, gives Apple an average score on ESG concerns and says it lags behind on issues related to corporate behavior, supply chain standards and e-waste.

“Fly away”

Research from Investopedia and Treehugger shows that as demand for ESG investing increases, investors want better ways to detect ESG issues. Less than half or 37% of ESG investors say ESG funds and equity screeners help them assess whether an investment meets their ESG standards. A recurring theme in the survey’s open-ended questions were responses noting readers’ dissatisfaction with the tools available to capture precise ESG metrics or find out how well an investment aligns with their values.


How ESG investors find information and integrate ESG criteria

When it comes to sources of ESG-related information, most ESG investors surveyed said they turn to financial and business websites. Watchdog groups were less popular, with only around a third or 32% of investors saying they turn to them for information on ESG investing.

Vanguard leads in ETF recognition

In terms of ETF awareness among Investopedia and Treehugger readers, Vanguard leads with more than half or 55% of respondents aware of the brand as an ETF provider and 28% aware of its ESG offerings. Fidelity came second and iShares ranked third for overall ETF awareness at 38% and ESG awareness at 18%. Survey respondents may already be clients of the companies they associate with ESG investing, but the association of the Vanguard brand with the investment theme is still very strong. For most of the other investment firms that took part in the survey, awareness of ESG offerings dropped to around a third of those who were aware of the brand.

While Vanguard is an industry leader in providing ESG investment funds, its main ESG fund, the Vanguard FTSE Social Index Fund, captures a fraction of the giant’s $7.2 trillion in assets under management (AUM). of investment with its $10.87 billion AUM. In fact, according to MSCI ranking Among the top ESG investment funds, Vanguard ranks third behind Parnassus Core Equity Fund, with $22.94 billion in ESG-related assets under management, and iShares ESG Aware Fund, with $13 billion. dollars. Fidelity Investments, the brand that ranked second among readers in terms of ESG awareness, does not have a single fund on the MSCI list of top ESG funds in 2021.

Investors are increasingly keen to align their investments with ESG-related companies and fund providers, but many rely on their personal judgment of what constitutes ESG investing and do not use research and metrics available from ESG rating providers. This is a huge opportunity for the financial services sector, as ESG investments are only expected to increase, with 67% of respondents planning to invest more in companies with strong ESG initiatives over the next five years.

Donated by Amanda Morelli/Adrian Nesta.