Global investors withdrew £8 billion from woke ESG funds last year, due to backlash over greenwashing and the “vague” promises they offer.
Figures from industry group Calastone show the three-year boom in funds focused on environmental, social and governance issues is now over.
From 2020 to 2022, £40 billion was invested in ESG, which has proven to be a boon for active fund managers, Calastone said.
This was “surprisingly” six times the investment committed to funds that did not have specific ESG commitments.
But last year billions were withdrawn by investors, including £2.9 billion in Europe, where the reversal was first seen – and £940 million in the UK. It has now spread, Calastone said.
U-turn: Blackrock boss Larry Fink was once at the forefront of the ESG movement but said last year he had stopped using the term.
This increase reflects the demand to invest ethically by supporting companies that reduce their carbon emissions or combat discrimination in the workplace.
ESG investors can generally be expected to avoid big oil companies or arms manufacturers.
But he was the victim of political divisions, particularly in the United States. And the trend has also been the subject of accusations of “greenwashing” – the idea that some companies flaunt their environmental credentials and exaggerate their effects.
Larry Fink, boss of asset management giant Blackrock, was once at the forefront of the movement but said last year he had stopped using the term. Calastone said the change in the last year has been “surprising.”
The report adds: “The big ESG backlash reflects accusations of greenwashing and a growing concern that ESG is simply too vague to address investors’ concerns. »
For example, an automaker that has improved its governance standards might qualify to be part of an ESG fund, even if a typical investor wouldn’t expect it to do so.
“Whether that’s because people don’t really believe that companies meet ESG criteria or they’re losing confidence in the fund management industry’s ability to effectively differentiate between companies that meet the highest standards and those that don’t. don’t do it, there’s been a clear break in the trend,” Calastone said.
“2023 is the first year since at least 2019 that non-ESG equity funds have attracted more capital than ESG funds. »
Overall, investors withdrew £5.6 billion from equity funds last year and were “particularly negative” from May onwards, Calastone said.