US fund managers experienced their worst quarter on record for ESG-focused products as the pace of client redemptions intensified.
Redemptions from U.S. funds targeting environmental, social and governance goals reached $8.8 billion in the first quarter of 2024, according to new data compiled by Morningstar. This was in stark contrast to the approximately $11 billion inflows into ESG funds in Europe, where regulation around sustainable investing is much more entrenched.
It’s the latest sign that American investors are turning their backs on the investment strategy, targeted by senior Republicans as “woke” and anti-American in its design.
At the same time, many core ESG sectors such as wind and solar have suffered setbacks, leading to poor returns and further alienating many investors.
“Sustainable funds have faced many headwinds in recent years, including rising energy prices, high interest rates and an ESG backlash in the United States,” said Hortense Bioy, Global Director of Sustainability Research at Morningstar.
The scale of U.S. ESG fund redemptions drove down global inflows, which were modest at $900 million in the first quarter, Morningstar said. Japan saw $1.7 billion in outflows, while the rest of Asia, as well as Australia and New Zealand, saw little to no change.
This development comes as investors wait to see how elections around the world will affect green policies that are likely to impact ESG investment strategies.
In the United States, Donald Trump and President Joe Biden are neck and neck in the polls. Across the Atlantic, European Parliament elections are expected to give parties that have expressed skepticism about green policies a greater place in the bloc’s legislature.
The global development reflects “caution ahead of key elections in the United States and Europe that will set the pace of future green policies and encourage or discourage more sustainable practices,” Bioy said.
Including stock price gains, global sustainable fund assets rose 1.8% last quarter to nearly $3 trillion at the end of March. The organic growth rate, however, was close to zero, compared to 0.5% growth in the broader fund universe, according to Morningstar.
Passive products continued to gain traction, and BlackRock, the world’s largest asset manager, maintained its leadership position. Its $368 billion in sustainable assets is about twice that of Amundi SA, Europe’s largest investment manager.
The market research firm examined open-end and exchange-traded funds that, according to their prospectuses or other regulatory documents, claim to focus on the flagship criteria of ESG standards, namely sustainability, social impact or environmental, social and governance factors.
reference: www.lapresse.ca