While the investment trend of integrating environmental, social, and governance (ESG) factors into portfolios may provide diversification benefits and promote positive environmental, climate, social, and governance principles, financial institutions chasing limited investable ESG assets may contribute to systemic risk in the economy when they concentrate their investments in firms with similar ESG ratings. This chapter investigates the relationship between U.S. financial institutions’ ESG investment and systemic risk from 2010 to 2020 and provides evidence that institutions investing more equity in firms with better ESG performance tend to contribute more risk to the financial system. This empirical finding contributes to the ongoing debate surrounding the costs and benefits of ESG investment, highlighting its potential side effects on financial market stability.