Introduction

The journey of ESG (Environmental, Social, and Governance) integration within U.S. actively managed equity funds has reached a critical and contentious juncture. Once heralded as an unstoppable trend, ESG is now facing headwinds of political polarization, investor skepticism, and market complexities that challenge even the most thoughtful investors.

Behind the noise of public debate lies a set of uncomfortable but essential questions: how many active managers in U.S. equity markets genuinely integrate ESG in a way that aligns with meaningful sustainable investment objectives? How compatible are common investment strategies, such as growth and value, with real-world ESG constraints? And what are the trade-offs for investors who wish to remain committed to ESG principles while seeking competitive returns in an evolving U.S. market landscape? In this analysis, we examine the current ESG profiles of active U.S. equity funds through a quantitative lens.

ESG integration in U.S. Active Equity Funds: A Changing Slimate

Despite widespread discussion of ESG principles and a decade of momentum, formal ESG integration in actively managed U.S. equity funds remains limited and, more worryingly, has stagnated. According to Morningstar’s 2024 Sustainable Investing Landscape Report, only 37% of actively managed U.S. equity funds claim to integrate ESG in their investment processes, compared with 45% of European counterparts. Recent trends suggest that the upward trend in the number of sustainability-oriented funds has slowed: this subject was examined in a previous Scientific Portfolio market review (Climate Exclusions Need Investor Scrutiny).

As anti-ESG sentiment becomes more entrenched in some parts of the U.S. political and legal landscape, U.S.-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 recent decision by the UK People’s Pension to pull £28 billion out of State Street providing a headline grabbing example. Moreover, market concentration in large technology stocks poses a challenge, while most of these companies have typically scored well on ESG metrics, the changes taking place in this industry raise significant concerns over ongoing ESG assessments.

Authors

Aurore Porteau de La Morandière
ESG & Quant Researcher,
Scientific Portfolio …………………………………………..

Shahyar Safaee
Deputy CEO and Business Development Director,
Scientific Portfolio

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