Nor has USA ESG Leaders distinguished itself from the broad market in recent years despite a heavy weighting to the technology sector, which tends to receive strong ESG marks and has led the stock market higher. The ESG index is a hair behind the broad market over the last three years and trails it by about 5 percentage points since the market emerged from its Covid-induced plunge last spring.
ESG’s track record in foreign markets is better but shorter. In developed markets outside the U.S., the MSCI World ex USA ESG Leaders Index outpaced its parent index by 0.8 percentage points a year from October 2007 through January, with slightly less volatility. And in emerging markets, the MSCI Emerging Markets ESG Leaders Index has beaten its parent index by 3.6 percentage points a year during the same period, also with less volatility.
For now, neither the confusion around ESG nor its mixed record appears to be holding back investors. ESG exchange-traded funds took in about $8 billion in 2019, according to Bloomberg Intelligence, outpacing the money they raised from 2001 to 2018 combined. And last year, they attracted a whopping $31 billion in new investment. Much of it went to BlackRock, which oversees well more than half the money in ESG ETFs.
Some are even calling ESG a bubble. It’s fashionable now to spot bubbles in places such as technology stocks or cryptocurrencies or a certain maker of electric cars, but ESG is almost certainly not among them. As a group, the stocks in USA ESG Leaders are comparably priced to the broad U.S. stock market — or cheaper, depending on the measure — and they’re more profitable. The same is true of World ex USA ESG Leaders relative to its parent index. Only Emerging Markets ESG Leaders is noticeably more expensive than its parent index, but modestly so.
None of that invalidates Fink’s broader message to CEOs. Yes, companies would be smart to think about climate and other risks, and investors, not just those interested in ESG, would be better informed if those risks were disclosed. But that won’t be enough for BlackRock to continue building its ESG empire. What it needs now is for ESG to perform.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.