wall StreetThere is a race to adopt sustainabilityinvestNow seeing poor returns, investors are pulling out their capital in large numbers and are quietly starting to close funds or delisting the ESG (Environmental, Social and Governance) name of the fund.
The Wall Street Journal (WSJ) reported that according to Morningstar data, more sustainable funds were liquidated or removed from newly established ESG standards in the third quarter than previously established, a first in history. This is a far cry from the recent past, when billions of dollars were flowing into sustainable investment products and players were rebranding underperforming funds as ESG funds to get a share of the action.
Hartford Funds added the word “sustainable” to the name of its main bond fund in 2021, and the fund subsequently earned $100 million. But the fund’s performance last year fell short of target, and Hartford changed its approach. The fund will be renamed Core Fixed-Income Fund later this month.
At least five funds have announced they will abandon their ESG missions this year, and 32 sustainable funds will close, according to information compiled by Morningstar and The Wall Street Journal.
Morningstar also said more than $14 billion of permanent funds have been redeemed this year, leaving $299 billion remaining. While traditional funds are also losing money, the situation is even more dire for thematic funds like climate.
This 180-degree shift in the market, primarily due to tighter regulations and rising interest rates, has hit clean energy stocks hard, and the related backlash has also made ESG investing a political target.
Vivek Ramaswamy, one of the Republican presidential candidates, left no stone unturned in attacking ESG.FloridaExecutives also said last year that BlackRock supports ESG and is looking to move $2 billion from the company’s assets under management.
On the other hand, the US Securities and Exchange Commission (SEC) has strengthened its oversight in this area and recently passed new rules to avoid confusing nomenclature. Deutsche Bank was accused of incorporating ESG data into its investment decisions, which was exaggerated and suspected of greenwashing. In September, Deutsche Bank agreed to pay US$19 million.