Why Are Investors Pulling Billions From ESG Funds?

ESG Exodus

ESG investing — or investing in companies that address environmental, social, and corporate governance issues — has grown rapidly in recent years. From Capitol Hill to Wall Street, institutions large and small are setting and pursuing ESG goals.

But is ESG investing as practical as it is prevalent? Investors are starting to wonder.

By and large, private sector money managers remain committed to the renewable energy movement. But a number of factors have led to lagging returns on ESG investments. As a result, investments in these funds are beginning to scale back.

Going Green Goes Red

According to research from Morningstar (MORN), investors pulled $635 million from U.S. sustainable funds in the second quarter. A total of $11.4 billion have been withdrawn this year.

By and large, investors still seem to see the potential in renewable energy and similar green initiatives. But, on the flip side, they are finding technologies like hydropower, solar, biofuels, and wind energy may require a few more years of research and funding to become financially viable.

Compounding this, as the cost of borrowing money rises, many sustainable projects have been put on pause. And, for money managers, there’s no pausing the need to post positive returns.

Money Talks

Even the world’s largest asset manager, BlackRock (BLK), has said it will close a pair of sustainable emerging-market bond funds with total assets of $55 million.

Does this mean ESG is at an end? Probably not. Instead, many money managers are simply re-examining their ESG strategies, narrowing scope or rebranding ESG funds in order to attract more investors.

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