The best ESG funds: what they measure and what companies learn from them

The global sustainable funds market comprised approximately $3.2 trillion in assets under management in 2026, according to the Morningstar Sustainable Investing Landscape report. In Europe, around 60 percent of this falls on funds according to Article 8 or Article 9 SFDR (Regulation (EU) 2019/2088). If a company wants to be represented in the leading ESG funds, it must understand the measurement and exclusion logic of these products.

This article is not aimed at private investors, but at ESG officers, CFOs and investor relations teams. You will find out which funds are considered market references, which rating providers they use, which thresholds decide whether to be included or excluded and how a company prepares itself to be audit-proof for ESG investment logic. The perspective is that of those being evaluated, not of the evaluators.

There is no general best list. Three levels of comparison are established. Firstly, the classification according to SFDR: Art. 8 (“light green”, ecological or social characteristics) and Art. 9 (“dark green”, sustainable investment goals). Second, the Morningstar Sustainability Rating Globes, a peer group-based scale from one to five. Thirdly, the ESG index families, such as MSCI ESG Leaders, FTSE4Good, S&P 500 ESG, Dow Jones Sustainability Index or Stoxx Europe ESG Leaders.

The largest ETF vehicles on such indices include iShares MSCI World ESG Enhanced, Xtrackers ESG MSCI USA, Amundi MSCI Europe ESG Universal Select, UBS MSCI World Socially Responsible. Actively managed houses such as Robeco, Nordea, Mirova or BNP Paribas Asset Management also run Art. 9 strategies that filter more narrowly, for example according to the Paris climate goals or UN Sustainable Development Goals.

It is not the fund that is crucial for a company, but the index or score that feeds it. If you are listed in the leading indices, you will automatically be included in dozens of fund products. You can find an overview of the operational duties on the ESG/Sustainability Officer role page.

MSCI ESG Research rates companies on a scale from AAA to CCC according to 35 key issues, weighted by industry materiality. The score feeds the MSCI ESG Leaders Index, which includes the companies with the top 50 percent of market capitalization in each sector. Sustainalytics (a Morningstar subsidiary) uses a risk rating in five levels from negligible to severe and is the data basis for many European Art. 8 products.

S&P Global ESG Scores are based on the Corporate Sustainability Assessment, an annual questionnaire with over 1,000 data points per industry. Among other things, it determines inclusion in the Dow Jones Sustainability Index. ISS ESG, a subsidiary of Deutsche Börse, covers around 8,000 issuers and particularly serves institutional investors in the DACH region.

The methodologies differ significantly. MSCI weights risks by sector, Sustainalytics evaluates the unmanaged residual risk, S&P checks performance against best practice, ISS uses rule-based exclusion and norm screens. A company can receive AA status from MSCI and only medium risk from Sustainalytics. Anyone who conducts investor relations professionally knows their scores from at least three providers and can explain discrepancies. This is a requirement of reliable ESG reporting.

Practically all Art. 8 and Art. 9 funds use an exclusion filter set, often based on the minimum standards of the Federal Association for Investment and Asset Management (BVI) or the EU's Paris-aligned benchmarks (Regulation (EU) 2019/2089). Controversial weapons (cluster munitions, landmines, biological and chemical weapons) as well as tobacco production, coal mining and coal-fired power generation above defined sales shares are typically excluded.

The threshold values ​​are usually 5 percent sales from coal, 10 percent from conventional oil/gas, 1 percent from controversial weapons, 25 percent from electricity generation with fossil fuels. In addition, there is the controversies screening: Companies that are involved in serious incidents according to the UN Global Compact (human rights, labour standards, environment, anti-corruption) are temporarily or permanently excluded.

For companies this means: a single unexplained supply chain incident can trigger bans lasting several years. The duty of care according to the Supply Chain Due Diligence Act, which will be replaced by the EU CSDDD (Directive 2024/1760) from 2027, will therefore also become a capital market issue. Adding an incident to a controversy database often only takes days. The cleanup took several years. The auditor calls, the evidence is ready.

The Sustainable Finance Disclosure Regulation, in force since March 10, 2021, creates uniform disclosure requirements for financial market participants. Article 8 requires an explanation of how a product promotes ecological or social characteristics. Article 9 requires demonstrably sustainable investment goals including a reference index. The EU taxonomy (Regulation (EU) 2020/852) defines which economic activities are considered ecologically sustainable.

This has three direct consequences for companies. First, funds must disclose Principal Adverse Impacts (PAIs), i.e. negative sustainability impacts of their investments, such as greenhouse gas intensity, water stress, board diversity. Second, investors demand taxonomy eligibility and alignment quotas from portfolio-ready companies. Thirdly, CSRD mandatory information according to ESRS flows directly into the funds' data pipeline.

The CSRD (Directive (EU) 2022/2464) gradually expands reporting. First wave from financial year 2024 for large capital market-oriented companies, second wave from 2025 for large non-capital market-oriented companies, third wave from 2026 for listed SMEs. The EU Commission announced relief with the omnibus proposal in February 2026, but the core framework remains in place. Companies that are not subject to CSRD are also recorded indirectly via supply chain and bank reporting.

Which data points a company discloses determines whether it is included or excluded. In the environmental cluster, these are Scope 1, Scope 2 and Scope 3 greenhouse gas emissions according to the Greenhouse Gas Protocol, energy intensity, water consumption, waste quotas, proportion of circular materials and climate targets according to SBTi (Science Based Targets initiative). The social cluster includes gender pay gap, board diversity, accident rate (LTIFR), training hours per employee, proportion of suppliers with audited working conditions.

In the governance cluster, board independence, separation of CEO and supervisory board chair, audit committee structure, remuneration transparency, whistleblowing channel according to HinSchG and anti-corruption measures are examined. Added to this are cybersecurity governance (often with reference to ISO/IEC 27001:2022) and data protection incidents, as data breaches are increasingly incorporated into ESG scores as a reputational and compliance risk.

A pragmatic data architecture cleanly maps these around 150 to 300 data points once and delivers them automatically in rating questionnaires, investor inquiries and CSRD reports. Anyone who manages them in Excel and PDF loses consistency and auditability. Others run compliance like a filing cabinet. We run it like software. CIVAC is a compliance platform and officer-as-a-service with audit templates for ESG reporting requirements and EU data residency.

The supervisory authorities have made it clear several times between 2024 and 2026 that greenwashing allegations can trigger not only reputational damage, but also direct sanctions. ESMA, the European securities regulator, published guidelines for sustainability-related fund names in May 2024 (ESMA34-1592494965-657). They require a substantial investment share in accordance with the designation as well as strict exclusions.

For companies, the danger is indirect. If a fund comes under fire for inaccurate sustainability communication from a portfolio company, the company is removed from the investment universe. Market capitalization effects have been proven: A study by the Centre for European Economic Research (ZEW) from 2024 showed that controversy incidents trigger an average price loss of 1.5 percent within 30 trading days, and more with repeated incidents.

For ESG officers, this means: reporting language must be verifiable. Statements such as “climate neutral” or “100 percent renewable” are vulnerable without documented methodology according to ISO 14068 or PAS 2060. The EU AI Act obligations for AI-powered ESG data analyses are added as soon as high-risk applications are involved. The appointment certificate, signed, filed, verifiable.

From the perspective of those being evaluated, a three-year roadmap is recommended. In the first year, taking stock: Which ratings exist, which data is available, where are the methodological weaknesses, which controversial hits can be explained. The data basis is usually the CSRD double materiality analysis according to ESRS 1. It also forms the basis for stakeholder engagement strategy and capital market communication.

In the second year, data architecture: Implementation of an ESG data platform with single source of truth, connection to HR system, energy management, procurement and risk management. Validation of Scope 3 emissions with supplier questionnaires, plausibility check by the supervisory board or auditor. Accompanying processing of the CDP questionnaires Climate, Water, Forests, which many investors use as a pre-filter.

In the third year of capital market communication: active approach to rating providers, investor days with an ESG focus, inclusion in roadshow materials, coordination with main shareholders. Result: measurable improvement in the score profile, lower capital costs, availability of green bonds or sustainability-linked loans. This strategy requires disciplined documentation. Audit-proof, documented, § 289c HGB-proof. The activity report of the ESG representative belongs on the platform as well as the appointment certificate.

The range of ESG requirements goes beyond any classic file structure. CIVAC bundles operational obligations in an EU-hosted platform with ISO 27001:2022-compliant ISMS. Appointment certificate, reporting line to the board or management, risk analysis, action plan and 490 ready-to-use audit templates are available in version form. Interfaces to CSRD reporting tools and rating platforms avoid duplication of work.

Licence the workspace for your internal representatives or have our representatives order it. The dual-model framework allows you to start in an ESG preparation phase with an external sustainability officer and gradually build up an internal structure. Audit templates for ESRS E1 to E5, S1 to S4, G1 are included, as are templates for supplier self-disclosure and stakeholder consultation.

The NIS-2 reporting paths are added for regulated industries. A 24-hour early warning and 72-hour follow-up reporting path according to NIS2UmsuCG is depicted in the platform and complements the ESG reporting in the cybersecurity and governance indicators. This creates a consistent database for ESG ratings, supervision and internal management. The auditor calls, the evidence is ready.

Knowing the best ESG funds is one side. Being represented in them is another. Both require data discipline that does not start in the sustainability report, but in ESG governance: clear role, clear data, clear evidence. Companies that want to remain relevant to the capital market in the long term should build this structure now, before the second wave of CSRD and omnibus adjustments further consolidate the market.

We support ESG officers, CFOs and board members in setting up an audit-proof ESG compliance architecture. The CIVAC platform covers 25 representative roles, provides 490 ready-to-use audit templates and centrally provides the appointment certificate, reporting line and action plan. Licence the workspace for your internal representatives or have our representatives order it.

Turn reading into a mandate. Write to info@civac.de or use the contact form on civac.de. We will get back to you within 2 working days with a concrete ESG governance proposal, a draft role mandate and a roadmap for the first 12 months.