Environmental, social and governance investing is rapidly losing favor among investors, CNN reports.
ESG mutual funds and exchange-traded funds worldwide have seen net new flows over the past year slow. In the past five quarters in the U.S., ESG flows have actually turned negative, according to Morningstar.
$13 Billion in Redemptions
In fact, U.S. investors have withdrawn a whopping $13 billion from these funds since the second quarter of 2022, with $5.7 billion of these redemptions in the first half of 2023.
“The U.S. really tells the story of the sharp rise in ESG investing commencing shortly after the market recovered from the initial pandemic selloff in 2020, only to take on near meme-stock status in the YOLO (you only live once) 2021, work-from-home bull market,” says Robert Jenkins, head of global research at Lipper.
ESG reached its final crescendo at the end of 2021—and has been declining ever since.
Clearly, ESG is on a downward spiral. Just look at mention of it in key company documents: It’s nearly nonexistent.
Taking their cue from BlackRock CEO Larry Fink, who said last month he would no longer refer to ESG because it has become too politicized, company earnings and annual reports have significantly curtailed any mention of ESG.
Beyond that, Jenkins says, a confluence of political, geopolitical and market events have stifled—some could say severely damaged—the appetite for ESG.
One major factor has been institutional investors’ aversion to energy and weapons stocks since Russia invaded Ukraine.
Additionally, last year, ESG funds were overweight technology stocks, which got hammered amid the market volatility and rising interest rates. ESG funds suffered noticeable losses, in lockstep.
165 Anti-ESG Bills
Additionally, at least 165 anti-ESG bills and resolutions have been introduced in 37 states, both red and blue, year-to-date through June 2013, according to climate risk consulting firm Pleiades Strategy.
As socially responsible investing, which gained traction in the 1990s, morphed into ESG, Jenkins says the decline in interest in this brand of SRI might be a good thing.
ESG, he maintains, had become a buzzword fad without much substance.
ESG was the “artificial intelligence of six years ago,” Jenkins says. “Every single conversation was about ESG—and there’s a whole industry built around this.
“It got worn out,” Jenkins says.
Furthermore, companies and funds have been increasingly accused of “greenwashing,” hyping or padding data to show environmental, social and governance support.
Guess what? The Lipper analyst says it’ll only fizzle further.
In its place, he predicts, more accurate terms like “climate transition” or “corporate transparency” could take the place of the unwieldly and ultimately meaningless ESG.
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