Alphabet was the most widely held stock for the largest ESG funds. Here’s what else they own
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Visitors pass by the logo of Google at the high profile startups and high tech leaders gathering, Viva Tech, in Paris, France May 16, 2019. Charles Platiau | Reuters

Funds that invest sustainably love tech companies – and Alphabet in particular. MSCI studied the year end 2020 holdings of the 20 largest funds that invest based on environmental, social and governance considerations. These funds account for about 13% of total assets in ESG equity funds. They include active and index-based strategies. The information technology sector of the S&P 500 accounted for the largest allocation in most funds, according to MSCI's analysis. Funds' holdings in these stocks ranged from 3.5% of their assets to more than 37%. Most of the ESG funds in the study had well over 20% of their assets in IT. Meanwhile, energy stocks accounted for a minimal portion of the funds' holdings. This helped the ESG funds outperform last year, as tech rallied while energy declined. Indeed, Google's parent company was held in 12 of the funds — making it the most widely held stock among the participants — with an average weight of 1.9% at year end, according to the study.

The next most widely held stocks were Ecolab, Thermo Fisher Scientific and Microsoft . "The largest areas where most funds were invested were tech, industrials and health care," said Rumi Mahmood, senior associate, ESG research at MSCI. "Tech companies have been the ones that have been the best performers. These companies were chosen not because they were tech, but because they fulfilled some sort of ESG criteria."

Higher concentration

Google's parent was present in more of the ESG funds, but Apple was the stock that accounted for the highest concentration within these portfolios. The funds held Apple at an average weight of 5.6%, followed by Microsoft at 5%. Other top stocks held by ESG funds include Applied Materials , Cadence Design , Adobe and Texas Instruments, according to MSCI's analysis. Mahmood notes that depending on which area it operates in, a tech company may not be as carbon intensive as stocks in other sectors. "There's a large dispersion," he said. Mahmood points out that the largest ESG funds cannot easily be compared since they all have different mandates. However, index-linked funds took in more money last year than actively managed funds.

Largest ESG funds

The largest ESG fund is the Parnassus Core Equity Fund , which is actively managed and has about $23 billion in assets, according to MSCI's research. Next is the iShares ESG Aware MSCI USA ETF, with $13 billion in assets, according to the report. Rounding out the top three is the Vanguard FTSE Social Index Fund , an index-based fund with $10.9 billion. All three are U.S. based and focus on U.S. assets.

Meanwhile, the iShares ESG Aware MSCI USA ETF brought in the most new inflows of the 20 funds in the study, with $7.1 billion in 2020. The iShares Global Clean Energy ETF followed in a distant second with close to $4 billion in new money.

Energy holdings