Investors Pull Billions From Sustainable Funds Amid Political Heat (2024)

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Investors Pull Billions From Sustainable Funds Amid Political Heat? ›

Investors Pull Billions From Sustainable Funds Amid Political Heat. A new report showed that $13 billion was withdrawn last year from funds that invest in companies with environmental, social and governance principles.

Investors pulled US$5 billion out of ESG-focused “sustainable” investment funds last quarter, according to a new report by Morningstar. The withdrawals came amid a wider market rally at the end of 2023. For the full year, US$13 billion was pulled from ESG funds.

Key Points. Sustainable investing promotes long-term economic growth by encouraging companies to operate more ethically and responsibly. It helps protect the environment by directing capital towards sustainable practices and technologies.

The transition to a decarbonised future is likely critical to the long-term resilience of companies, the economy and the planet as a whole. Strong ESG strategies and frameworks should be vital to economic recovery and for companies to thrive in the long term.

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

BlackRock, as the largest global investment management company, and a leading voice in the investment community on climate and energy transition-related investment themes, has found itself at the center of a vocal anti-ESG movement by Republican politicians in the U.S., who have accused the firm of following a social ...

John Paulson

Hedge fund manager John Paulson reached fame during the credit crisis for a spectacular bet against the U.S. housing market. This timely bet made his firm, Paulson & Co., an estimated $20 billion during the crisis.

Of course, investors have been voicing concerns about sustainability for several decades. But not until recently have they translated their words into action. Most of the investment leaders in our study described meaningful steps their firms are taking to integrate sustainability issues into their investing criteria.

Retail investors do care a lot about the ESG-related activities of the firms they invest in, but only to the extent that they impact firm performance, independent of ESG performance.

The research, conducted by Research in Finance, found that almost two-thirds of respondents (65%) in 2021 said they considered ESG when investing, a figure which fell to 60% in 2022 before falling again to this year's figure of 53%.

Does ESG really matter and why? ›

Successful companies are implementing ESG strategies that increase financial, societal, and environmental impact as well as ensure long-term competitiveness.

Sustainable or Environmental, Social and Governance (ESG) investing considers factors beyond traditional financial analysis. This may limit available investments and cause performance and exposures to differ from, and potentially be more concentrated in certain areas than the broader market.

ESG equity indices have performed in line with, or in some cases outperformed, traditional indices. Companies with higher ESG ratings tend to be more competitive and have high quality management teams, driving strong returns.

Failing to comply with these regulations can result in fines, sanctions, lawsuits and loss of licenses. To avoid this risk, businesses should monitor and align their ESG practices with the relevant legal frameworks and standards in their markets.

The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).

Some supporters think the term has become so broad as to lose much of its meaning. Many point to the prevalence of greenwashing, which is when companies exaggerate the environmental benefits of their actions. Other criticisms focus on the way fund managers rank companies by how they're performing on ESG factors.

BlackRock says it manages more than $800 billion through its sustainable investing platform. Additionally, banks helped arrange a record $150 billion of green, social, sustainability and sustainability-linked bonds globally last month and they remain committed to investing in the energy transition.

In the run-up to the pandemic and through 2022, ESG as an acronym became widely used. But until 2023, this use was largely unchecked. The term evolved to mean everything to every company, which in turn led to it meaning very little to those trying to isolate the signal from the noise.

“BlackRock has been the biggest contributor of inflows into ESG funds over the past five years, including the past couple of years,” said Hortense Bioy, Morningstar's global director of sustainability research. And that's “despite the ESG backlash in the US.”

Time is running out for policymakers to act. Climate change affects investments primarily through: financially material climate risk factors (physical and transition risks), and investor flows out of carbon-intensive companies.