Are healthcare funds up to the ESG challenge?

Just 0.51% of healthcare funds in global MSCI study showed alignment with health-focused sustainable development goal

Are healthcare funds up to the ESG challenge?

Over the past year, healthcare investments have taken centre stage as investors came to realize the crucial role they would play in building a post-pandemic economy. At the same time, a starkly exposed picture of inequality along various lines, including access to healthcare, has made ESG top-of-mind.

With the potential to align the different objectives of doing good and doing well, the investment thesis for healthcare funds has grown considerably stronger. But according to new research from MSCI, the reality might not be so rosy.

Looking at a global universe of funds that invest in healthcare and allied industries around the world – including pharmaceuticals, biotechnology, and medical innovation – researchers from the index provider looked for funds that were in line with the UN’s third sustainable development goal (SDG), which focuses on good health and well-being for people of all ages.

“Only 47 healthcare funds globally exhibited greater than 50% alignment with SDG 3; these comprised just 0.51% of all healthcare funds and 15% of the total assets in healthcare funds in our coverage as of May 15, 2021,” researchers at MSCI said.

Of the funds that aligned with SDG 3, the report found only five mutual funds had explicitly stated that ESG criteria will be adopted in their investment policies. Notably, none of the ETFs in MSCI’s dataset had an ESG policy.

SDG 3-aligned funds, it added, tended to favour U.S.-domiciled biotechnology companies most, with only four companies standing out as being frequent portfolio holdings and having a high average weight alongside SDG 3 alignment.

“Companies among the top 30 holdings of SDG 3-aligned funds with high SDG 3 alignment and low average holding weight and frequency may hold potential for impact investors,” MSCI said.

The MSCI ESG ratings across the whole universe of healthcare funds, the report added, appeared to have low correlation with SDG 3 alignment, suggesting that their ESG standings were not predominantly driven by a focus on making an impact through healthcare.

“Impact investors could consider additional criteria such as issuer-level SDG 3 alignment, performance on [supporting access to healthcare], and revenue derived from the treatment of major diseases,” the researchers said.


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