LONDON - Nvidia’s stratospheric ascent has lured at least 100 more ESG funds in recent weeks, transforming the company into one of the most popular stocks among asset managers who integrate environmental, social and governance (ESG) metrics into their investment strategies.
There are now more than 1,400 ESG funds directly holding Nvidia, according to data compiled by Bloomberg based on the latest filings.
A further 500 are indirectly exposed, the data shows.
Nvidia shares hit a record high on Tuesday, bringing gains this year to about 200 per cent.
The technology company is now more popular among ESG investors than traditional green powerhouses such as Vestas Wind Systems and Tesla, according to the Bloomberg data.
The funds analysed are registered as either “promoting” ESG, making it their “objective” or simply marketing themselves as ESG.
Nvidia has become an “ESG darling”, said Mr Felix Boudreault, managing partner at Montreal-based Sustainable Market Strategies.
He said this is “not ludicrous”, because the company is “exemplary” when it comes to traditional ESG risk management.
ESG’s growing exposure to tech – and in particular artificial intelligence (AI) – has the potential to change the narrative around an investment strategy that in 2022 suffered a number of headwinds.
Amid an energy crisis and rising interest rates, ESG found itself the target of political attacks in the United States, with Republicans calling it an anti-American form of business and investing that put a “woke” agenda ahead of financial returns.
In 2023, however, ESG funds’ reliance on tech is driving outperformance.
The top ESG funds so far in 2023 are all tech-heavy and invested in AI, and all have returned more than 40 per cent.
In Europe, ESG equity funds have delivered about 12 per cent in 2023 on average, compared with gains of roughly 8 per cent in the Stoxx Europe 600 Index.
Among ESG-registered funds with the biggest returns so far in 2023 is one managed by T Rowe Price Group, which is up about 46 per cent.
Nvidia is its fourth-largest holding, according to Bloomberg data.
The fund, whose top three stocks are Apple, Taiwan Semiconductor Manufacturing and Microsoft, has beaten 97 per cent of peers since the end of December.
An ESG fund run by the asset management unit of JPMorgan Chase & Co is also up 46 per cent, according to Bloomberg data. Its biggest holdings are Facebook parent Meta Platforms and Nvidia.
The Nasdaq 100 Stock Index, whose top three stocks by weightings are Microsoft, Apple and Nvidia, has soared almost 40 per cent in 2023.
As investors pile into AI, Europe and the US are figuring out how best to rein it in with regulations amid warnings from some of the scientists behind the technology that it may pose a serious threat to society without adequate guardrails.
But Mr Boudreault says that if done right – and with the right regulatory boundaries in place – the “AI revolution” could actually have “massive positive impacts to address the world’s most pressing challenges, be they social or environmental”.
Meanwhile, the mania surrounding AI-related stocks is starting to look overdone to some.
Ms Cathie Wood, founder and chief executive of Ark Investment Management, said earlier in 2023 she had decided to drop Nvidia as the company faces growing competition.
Ms Wood is instead looking “to another set of plays”, she said.
Mr James Penny, the chief investment officer of TAM Asset Management and a veteran investor who correctly predicted the headwinds facing ESG in 2022, said earlier in June that the current mood around AI is reminiscent of the early days of the tech bubble that burst in 2000 and wiped more than 70 per cent off the Nasdaq.
In comments first published on June 12, he said “the market has got a little bit” ahead of itself.
“I’d put much larger odds on it coming down from here,” said Mr Penny.
Mr Boudreault said chasing a market frenzy “is never a good strategy”.
But if the question is whether it makes sense to hold Nvidia from an ESG point of view, then the answer is “increasingly, yes”, he said. BLOOMBERG
