Most thematic funds fail to include adequate ESG criteria according to research from MSCI.
MSCI says that only 7% of thematic funds incorporate ESG in stock selection or index construction. They estimate that thematic funds have seen AUM rise from $150bn in 2017 to over $600bn in 2021 and funds investing in energy transition account for over 30% of overall thematic assets and averaged the highest ESG ratings.
However, energy transition funds showed the highest carbon intensities due to their exposure to utilities and energy firms. Technology funds had the highest ratings with 50% having an A rating.
“Thematic shifts touch every corner of our lives from the growing digital economy to smart cities and the food revolution to efficient energy and disruptive and autonomous technology,” said Rumi Mahmood, senior associate of ESG fund research at MSCI. “It is important that investors better understand their exposure to these trends as they build portfolios and make decisions around future strategies, especially as ESG integration becomes a core component of portfolio construction. It should be further noted that macroeconomic, geopolitical and technological trends are not short-term swings — but long-term, structural, transformative shifts. The ESG attributes of these themes may therefore naturally evolve over time.”