Global investors pulled £8 billion from woke ESG funds last year, amid a backlash against greenwashing and the ‘vague’ promises they offer.
Figures from industry group Calastone show that the three-year boom for funds focused on environmental, social and governance issues is now over.
From 2020 to 2022, £40 billion was poured into ESG, which proved to be a boon for active fund managers, Calastone said.
That was an ‘astonishing’ six times the investment in funds that had no specific ESG commitments.
But last year investors pulled out billions, including £2.9 billion in Europe, where the reversal was first observed – and £940 million in Britain. 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 was no longer using the term
The increase reflected a demand to invest ethically by supporting companies that reduce carbon emissions or tackle discrimination in the workplace.
Normally, ESG investors are expected to avoid big oil companies or weapons manufacturers.
But the country has fallen victim to political divisions, especially in the US. And the trend has also been subject to claims of ‘greenwashing’ – the idea that some companies flaunt environmental credentials, exaggerating their impact.
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 last year had been “startling”.
The report added: ‘The large ESG backlash reflects allegations of greenwashing and a growing concern that ESG is simply too vague to address investor concerns.’
For example, an automaker that has better governance standards may qualify to be part of an ESG fund, even though an average investor might not expect this.
‘Whether it’s because people don’t really believe that companies are following the ESG path, or because they are losing confidence in the fund management industry’s ability to effectively distinguish between companies that meet the highest standards and those that don’t, there is a clear break from the trend,” Calastone said.
“2023 marks the first year since at least 2019 that non-ESG equity funds have attracted more capital than ESG.”
In total, investors withdrew £5.6 billion from equity funds last year and were “particularly negative” as of May, Calastone said.