The awakened investment fever may have reached its peak.
According to a new report: Financial Times, Investors have pulled a net $40 billion from so-called “environmental, social and governance,” or ESG, funds since the start of 2024. These withdrawals represent “the first year in which capital flows have trended negative.” Times“Poor performance, scandals and attacks from the US Republican Party.”
This trend is especially pronounced in the United States: in April alone, US investors withdrew $4.4 billion from ESG stock funds. BlackRock, once one of ESG’s most prominent advocates, has halved its ESG assets since 2021. BlackRock CEO Larry Fink has also publicly stated that he will no longer use the term “ESG” because it has been “fully weaponized.” Parnassus Core Equity, “the largest sustainable fund in the US,” with $28.4 billion in assets under management, “has been in the top 10 for inflows for the second year in a row.”
As Times And the main reason for ESG’s sudden decline in popularity is reported to be a significant decline in returns: While traditional stock market funds returned an average of 21% over the past year, ESG funds returned an average of just 11%. As the stock prices of fossil fuel companies soared, ESG-focused funds missed out on all of those gains.
Jamie Franco, global head of sustainable investing at asset manager TCW, said: Times He points out that many funds that were launched during the rise in popularity of the ESG movement in 2020 and 2021 were “probably rushed a little bit.” [and] “Perhaps they capitalized on ESG marketing sentiment.” In other words, Franco seems to be suggesting that ESG “investing” is driven more by politics than actual sound economic reasoning.
The ESG movement has been around for decades, but initially focused primarily on companies’ environmental impact. Oil and gas companies were the first and most hated enemies of ESG activists, who pressured firms like BlackRock and Vanguard to increase their investments in wind and solar companies to avert a supposed climate disaster.
Most investors are accredited fiduciaries, meaning they are legally obligated to only invest client money in companies they believe will generate the greatest returns. ESG investing allows fiduciaries to breach that duty and invest in companies that may, in theory, have lower returns. The reasoning is that, although the risks are greater, solar companies are more environmentally responsible and therefore have a higher ESG score.
In 2020, amid the riots that ravaged American cities and the rise of the “defund the police” movement, the spirit of the movement shifted significantly. ESG advocates, already dabbling in left-leaning social politics, suddenly became obsessed with pushing “fairness” and “racial cleansing” in investment banking. So-called “diversity, equity, and inclusion” or DEI offices began popping up in major corporations to appease the liberal activist base.
But now, a backlash against the movement appears to be building in earnest, fuelled by poor returns on ESG funds and a growing fatigue with identity politics on the left.
Elon Musk, who has led the movement against corporate wokeism more than any other business leader, slammed ESG in a post on X last week following Tesla’s poor ESG rating. In his first post on the platform, he wrote: Washington Free Beacon Writer Aaron Sibarium reported, “From S&P Global to the London Stock Exchange, tobacco companies are beating Tesla to the punch with ESG ratings. How can cigarettes, which kill more than 8 million people a year, be considered a more ethical investment than electric cars?”
“Why ESG is the devil,” Musk responded.
As Sibarium suggests, the S&P report gave tobacco giant Philip Morris a score of 84 out of 100. Meanwhile, Tesla only got a score of 37, despite working harder than any other company to accelerate the adoption of electric vehicles and receiving mostly positive employee reviews.
As New York Post As reported, S&P’s ESG ratings are supposedly determined by analyzing “1,000 data points from 8,000 companies, including climate strategies, labor practices, stakeholder engagement, business conduct codes, and board diversity.” But the fact that Philip Morris received more than twice the score as Tesla suggests a political ideology, particularly support for far-left sociopolitics. It seems all Big Tobacco had to do to get back in the good graces of the corporate elite was to wake up.
As Financial Times As the report shows, investors appear to have come to more or less the same conclusion as Musk. Times They called it an “attack” by Republican elected officials. Liberals criticized Republican states for pulling money, primarily state pension funds, from investment banks that adopted ESG, but the declining returns on ESG funds proved Republican state leaders dead right, benefiting pensioners.
To be sure, ESG investing remains a very powerful force in the world of investment banking, with activist-minded employees now entrenched in nearly every major corporation and financial institution.
But if recent cash outflows are any indication, the ESG movement may soon be facing a total implosion.
Andrew Shirley is a veteran speechwriter and columnist for AMAC Newsline. His comments can be read at @X.AA_Shirley.
