The sustainability investing landscape, often encapsulated in the term ESG (environmental, social, governance) has seen remarkable growth over the past decade. However, recent trends have raised questions about its viability and future, prompting many to ask, is ESG investing dead? While declining investment flows, fears of greenwashing, and lack of regulatory policies in the US underpin investor uncertainty, this is likely a temporary pause rather than a permanent setback.
In 2022 and 2023, ESG-focused funds saw significant outflows. For instance, BlackRock's iShares ESG Aware MSCI USA ETF experienced substantial redemptions, losing $9.3 billion in a year. This trend reflects a broader hesitation among investors, driven by confusion – over what constitutes genuine ESG criteria, the various approaches to ESG investing, and whether ESG investing can lead to outperformance.
The enthusiasm for launching new ESG funds has also waned. While previous years saw a proliferation of new ESG products, recent data indicates a slowdown. Regulatory uncertainty and political rhetoric have led to a more conservative approach among fund managers. For example, the overall number of sustainable funds and exchange-traded funds (ETF) has not grown as rapidly as before, reflecting a more cautious sentiment about the near-term prospects of raising assets.