Money flowing from funds that invest in companies with environmental, social and governance principles has hit the nail on the head, as investors grow weary of a sector hit by green-washing concerns, red-state boycotts and boardroom debates.
The investment strategy has become increasingly politicized after being used by companies to address ESG issues among their employees, customers and other stakeholders. In the sign of the times, idiom has been cleared From the official event of the World Economic Forum in Davos, Switzerland, after being on the agenda in previous years.
Investors pulled $5 billion from ESG-focused “sustainable” investment funds last quarter A new report from Morningstar, The withdrawal came amid a broader market rally towards the end of 2023.
For the full year, $13 billion was withdrawn from ESG funds. Overall, it was “the worst calendar year on record,” wrote Alyssa Stankiewicz, Morningstar’s director of sustainability research.
Even the bulls are changing their story. Larry Fink’s BlackRock, a longtime champion of ESG investing strategies, has gone quiet on the issue as political tensions rise. especially among Republican lawmakers, The brunt of outflows last year came from a single iShares ESG fund managed by BlackRock.
The ESG market is still worth trillions, attracting investors looking for solid returns and motivated by a cause they believe in. The average return for large ESG funds was 20.8 percent last year, according to Morningstar, although it lagged. S&P 500.
But investors’ returns are off their 2021 peak, hurt by rising interest rates and the lack of regulation that would better define which stocks qualify as ESG, Morningstar noted. It has been said that political heat is also having a cooling effect. Last month, House Republicans Investigation of fund giants has been intensified Such as BlackRock and State Street on their ESG investment strategy.
Wall Street has reacted. Fund managers closed 16 such funds and opened seven last quarter, the second consecutive quarter in which closures outnumbered new entrants.