The 2025 Scientific Portfolio Market Review examined how compatible common investment strategies are with real-world ESG constraints by analysing a subset of 353 large-cap equity mutual funds, categorised into growth and value strategies. The analysis found that, on average, value funds, which are often exposed to sectors such as energy and utilities, face greater challenges in aligning with ESG criteria than growth funds, which typically lean towards technology and healthcare.

For instance, a median value fund would need to exclude about 18.5 % of its holdings to comply with a Paris-Aligned Benchmark (PAB) screening, compared with 10.7 % for growth funds, the report found.

“Behind the noise of public debate lies a set of uncomfortable but essential questions: how many active managers in US equity markets genuinely integrate ESG in a way that aligns with meaningful sustainable investment objectives, and how compatible are common investment strategies, such as growth and value, with real-world ESG constraints,” the report stated.

However, the report stressed that not all value strategies are incompatible with ESG mandates, and not all growth funds are naturally compatible. This is due to considerable diversity within both categories, and therefore, ESG alignment must be evaluated on a fund-by-fund basis, the report added.

ESG Backlash

The report comes as US asset managers navigate a more complex ESG landscape.

“The journey of ESG integration within US actively managed equity funds has reached a critical and contentious juncture. Once heralded as an unstoppable trend, ESG is now facing headwinds of political polarisation, investor scepticism, and market complexities that challenge even the most thoughtful investors,” the report stated.

Currently, only 37 % of US equity funds claim to incorporate ESG criteria significantly lower than their European counterparts at 45 %. This stagnation coincides with increasing political opposition to ESG investing in the US, where several states have introduced legislation aimed at restricting its use in public pension funds.

“As anti-ESG sentiment becomes more entrenched in some parts of the US political and legal landscape, US-headquartered asset managers are treading more carefully with their public commitments, their strategic approaches and their investment processes. In doing so, they must navigate a global client base, with European investors showing no signs of retreating on the ESG theme, with the recent decision by the UK People’s Pension to pull £28 bn out of State Street providing a headline-grabbing example,” the report added.

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👉 US Equity Value Funds Must Remove More Holdings to meet ESG Standards