When it comes to the American Library Association’s (ALA) more than $66 million endowment, we trustees are mindful of the ethical impact of the Association’s investments. That’s where ESG, or environmental, social, and governance, investing comes in.
ESG investing refers to the practice of incorporating environmental impact, social issues, and corporate governance into investing decisions.
A series of United Nations–sponsored reports popularized the term in 2004, although some earlier investment funds practiced socially responsible investing. Some that remain popular and influential include: Calvert’s social investment fund, launched in 1982; TIAA’s CREF Social Choice Account (now the CREF Responsible Balanced Account), established in 1990; and Domini, which introduced the first environmental and social index fund in 1991.
This column will answer the primary questions that endowment trustees are asked about ESG investments and how ALA approaches them.
When does ALA choose ESG funds?
We start by looking for exchange-traded funds (ETFs), mutual funds, or alternative investments that match ALA’s Investment Policy Statement. If an ESG fund has a similar expense ratio, or cost, and anticipated performance to the non-ESG funds we are considering, we often choose the ESG fund. ALA currently invests just over 50% of its portfolio in ESG funds, the result of fund-by-fund decisions based on their expense, anticipated performance, and other factors, including whether a fund identifies as ESG.
At the close of April, ALA’s investment portfolio was valued at $66.2 million after a $4 million transfer from the “Future Fund” to help address ALA’s structural deficit. Additionally, about 5% of the portfolio is distributed each year by ALA’s Executive Board to fund operations, scholarships, division-based initiatives, awards, and other needs.
How are “environmental,” “social,” and “governance” factors determined and measured?
Most investment firms (such as Blackrock, Fidelity, Schwab, TIAA, or Vanguard) rely on specialized agencies, such as MSCI or FTSE Russell, to evaluate the companies they are considering as investments. Each agencies’ methodologies and ratings emphasize or exclude different practices and factors.
How do ESG returns compare with non-ESG returns?
While the topic has been extensively studied (the IDEAS-RePEc database has more than 7,000 articles from the past 20 years that include ESG in their abstracts), there is no scholarly consensus on whether ESG outperforms or underperforms non-ESG investments. The most cited paper in IDEAS-RePEc, published in 2015, reports, “The business case for ESG investing is empirically very well founded. The large majority of studies reports positive findings.” The third-most cited paper, from 2021, is less certain, finding “conflicting hypotheses and results that we show are not resolved, leading to continued questions and a need for more research.”
As with most approaches to investing, evidence on ESG is nuanced. These papers and others in this database are a good place to start if you are interested in this topic.
How popular are ESG funds?
A February 2026 article from investment research company Morningstar reported that $3.9 trillion is invested in sustainable funds worldwide. The approach is most popular in Europe, which “accounts for almost 86% of global sustainable fund assets, followed by the US with 9%. Sustainable funds represent approximately 20% of the overall European open-end fund and ETF [exchange-traded funds] universe, compared with just 1% in the US.”
