According to an analysis by ESG specialist Elisabeth Steyn, U.S. equity funds that are classified as ESG, have on average 29% of their holdings in tech stocks. Steyn told Alice Ross of Financial Times that the figure is well above the 23% average for general equity funds. Ross used the iShares ESG Aware MSCI USA ETF as an example. The fund’s top holdings include Apple, Microsoft, Amazon, Tesla, and Alphabet. This may help explain why many ESG funds are seeing heavy losses this year. Ross attributed the reason to two factors. First, ESG funds are exclusionary. Once certain areas of the market are stripped out, tech is typically over -represented. The second reason is that ESG rating agencies can differ greatly on which companies are sustainable. That reason alone can help explain why the SEC is going after ESG labeling. Ross also noted that ESG funds outside the U.S. are not typically overweight in tech stocks.
Finsum:U.S. ESG funds are heavily overweight in tech stocks due to differing ESG labels and exclusionary factors.