Just 15% of funds have large tilt towards sustainable factors
The number of funds that consider environmental, social and governance (ESG) issues when they make investment decisions is small according to MSCI research.
Out of more than 21,000 global funds screened by the index provider, it identified 3,158 with a "significant tilt" toward sustainable impact themes (defined as 10% of portfolio weight or higher), representing $1.8trn (£1.27trn) in net asset value as of 1 March 2016.
This year MSCI expanded its ESG research to cover approximately 21,000 mutual funds and exchange-traded funds (ETFs).
The index provider has also launched its ESG fund metrics which measure the ESG characteristics of portfolio holdings and rank or screen funds based on factors including sustainable impact, values alignment and ESG risks.
MSCI ESG Research managing director Eric Moen said: "The demand from clients who want to consider ESG criteria to align their investments with their values is continuously increasing. Fund Metrics is a natural extension of our ESG ratings and research, adding even more transparency as the sustainable investing movement gains momentum."
A number of asset managers including Merrill Lynch Global Wealth and Investment Management, Credit Suisse and Nordea Asset Management welcomed MSCI's focus on ESG.
Nordea Asset Management head of responsible investment Sasja Beslik said: "It is great to see MSCI ESG Research offer more tools designed to bring greater fund-level transparency and assist with measuring a portfolio on a diverse set of ESG characteristics."
In a statement, Credit Suisse added, "The demand from clients who want to consider ESG criteria and wish to align their investments with their values is continuously increasing. We help them better assess ESG related risks to ultimately achieve a sustainable impact through their investments - without compromise on the performance side."
A number of initiatives have been launched by various organisations to get climate change and responsible investing on the map.
In June 2015 the Environment Agency Pension Fund (EAPF) moved its entire £280m global passive equities portfolio into the MSCI World Low Carbon Target Index.
WHEB became the first asset manager to adopt the Red Line voting principles developed by the Association of Member Nominated Trustees (AMNT) to give trustees more power.
The Red Line Voting programme is an initiative launched last year to give pension scheme more tools to influence the companies they invest in, and has a set of voting rules covering a range of ESG issues.
In February, investors responsible for more than $8trn (£5.54trn) of assets backed shareholder resolutions against Anglo American, Glencore and Rio Tinto to be more transparent over climate change risks.
Key research findings
Government bond funds and European equities scored highest on ESG Quality, while small‐cap US, emerging market equity, and high yield bond funds scored lowest.
Variation also existed within peer sets - for example. Target Date funds with shorter time horizons tended to exhibit higher ESG quality, while longer‐horizon funds exhibited lower ESG quality.
Identified 3,158 funds across asset classes with significant exposure to sustainable impact themes (like alternative energy, health care, nutrition). Of these, only 14% were identified by MSCI ESG Research as specialized thematic or sector funds.
Over 6,900 equity funds representing 46% of equity funds analysed had exposure to companies that manufacture controversial weapons, such as cluster bombs and land mines. The average exposure to these companies across all funds was 2.9%.
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