Managers of ESG funds have historically preferred to buy shares of companies in growth industries like technology because they tend to have fewer material ESG risks, Hale said. In fact, the five sectors with the most ESG risks—energy, utilities, basic materials, consumer staples and health care—are more heavily weighted in value funds than in growth funds.
The average large-value portfolio’s weighting in those five industries is about 44%, compared with 20% for large-growth funds, Hale said. By contrast, large-growth funds devote an average of 53% of assets to the three sectors with the lowest ESG risk — real estate, consumer cyclicals, and especially, technology. Large-value funds devote an average of only 20% of assets to those sectors.
“Even with all this data, I’ve got news for you: There are no intrinsically ‘ESG’ or ‘non-ESG’ companies,” Hale said.
The use of ESG signals to companies that investors believe it’s important for them to address issues like energy efficiency, and most companies don’t want to be seen as ESG laggards, Hale said. “In light of that, I can’t think of a better place stylistically to practice ESG than value.”
According to Hale, here are some ESG funds to consider for more neutral or value-leaning style exposure:
- For large-blend ESG funds with neutral, but slightly value-tilted profiles, consider Boston Trust Walden Equity (WSEFX) or Northern US Quality ESG (NUESX).
- For large-blend ESG funds with more clear-cut value tilts, check out DFA US Sustainability Core (DFSIX) or Pax US Sustainable Economy (PXWGX).
- For large-value ESG funds, check out Calvert US Large Cap Value Responsible Index (CFJIX) or Nuveen ESG Large-Cap Value ETF (NULV).
This article was provided by Bloomberg News.