ESG funds: a “Green” trend that is now rapidly waning

Just a few years ago Wall Street rushed to embrace sustainable investing with incredible enthusiasm. Now it is quietly shutteringESG funds or deleting their names after disappointing returns that led to investors cashing out billions. Social-ecological enthusiasm is not worth the money lost, especially when the so-called "Greenwashing", the green coating of normal investments, is no longer possible, and it was the WSJ who realized this.

The about-face comes after tighter regulatory oversight, higher interest rates that have hit clean energy stocks and a backlash that has made environmental, social and corporate governance investing a political target.
“This is really the result of too many managers trying to profit from the increased awareness and demand for ESG investing,” said Tony Turisch, senior vice president at Calamos Investments, reported by the WSJ.

According to Morningstar , the third quarter was the first time more sustainable funds eliminated or removed ESG criteria from their investment practices than added it. This is a reversal from not long ago, when firms were rebranding troubled funds to cash in on the billions of dollars flowing into sustainable investment products.

In 2021, Hartford Funds put the word “sustainable” in the name of its flagship bond product and subsequently saw investors pour $100 million into it. But after missing its performance goals last year, Hartford is shifting gears again. By the end of the month, the bond fund will be renamed Core Fixed Income Fund and sell some of the holdings that make it sustainable to pivot to a conventional investment strategy, according to company documents. A sharp change of direction, from 'Sustainable' to 'Profit'.

At least five more funds have announced plans to abandon their ESG mandates this year, while another 32 sustainable funds will close, according to data compiled by Morningstar and the Wall Street Journal.
The withdrawal comes after investors pulled more than $14 billion from sustainable funds in 2023, leaving them with $299 billion, according to Morningstar. Conventional funds also lost money, but the pain was sharper for climate products and other thematic products hit by high interest rates and other factors.
Ron Rice, vice president of marketing at Pacific Financial, said the legal battle over the Labor Department's rule allowing pension fund managers to consider ESG factors may have weighed on the popularity of his company's sustainable products.

In reality, the fund managers discovered that, despite the suffocating and obsessive communication, in the end the demand for this type of investment was not what they had imagined and, in any case, this too melted like snow in the sun when the performance problems began. .

Earlier this year, Pacific Financial removed sustainability from the name of three mutual funds that held more than $187 million. All three funds then saw a surge in their assets under management, Rice said.
Political pressures could also influence changes. Republican presidential candidate Vivek Ramaswamy has been an ESG critic. Last year, Florida said it wanted to withdraw $2 billion in assets under management from BlackRock, partly because of the company's support for ESG.
This mix of causes has meant that the growth in the number of ESG funds has become…. a degrowth, a net decline

Meanwhile, the Securities and Exchange Commission is stepping up oversight of the industry and recently adopted a rule to prevent misleading naming conventions. Funds have about two to three years to comply, depending on their size.
The SEC is already monitoring this sector more closely. Some managers, such as the one headed by Deutsche Bank, DWS, even had to pay heavy fines.

So, in the end, even “Green”, ESG, turned out to be yet another fad. In finance, only one factor has always reigned, which never goes away: profit. Everything else is something destined to pass quickly.

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The article ESG Funds: a “Green” trend now rapidly declining comes from Scenari Economici .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/fondi-esg-una-moda-green-ormai-in-rapido-tramonto/ on Mon, 20 Nov 2023 17:37:25 +0000.