I recently reported that investors are fleeing renewable energy funds due to rising costs and escalating rates.
Now, it looks like “Sustainability Funds” are not sustainable. Morningstar, a firm specializing in investment research and management services, recently issued a fascinating report indicating that investments fell by nearly $3 billion over the last quarter.
Investor appetite for sustainable funds waned in the third quarter. U.S. sustainable funds endured their fourth-consecutive quarter of net withdrawals. Sustainable bond funds stood alone in registering net inflows. For more detail, download the full report here.Investors pulled $2.7 billion from U.S. sustainable funds in 2023′s third quarter, for a total of $14.2 billion over the past year.Although the motivations behind outflows cannot be perfectly quantified, many factors are in play. These include rising energy prices, high interest rates, concerns about greenwashing, and political backlash. U.S. equity and fixed-income markets fell by 3.2% in the third quarter, as illustrated by the Morningstar US Market Index and Morningstar US Core Bond Index, respectively.
This trend is a dramatic shift from the golden days of 2021.
Investment products with a declared aim to promote ethically responsible practices, from cutting greenhouse gas emissions to increasing workplace diversity, have lost their lustre in the U.S. since a 2021 boom, as regulators scrutinised how they were marketed and Republican politicians alleged industries were being boycotted to the detriment of retirees’ savings.”For the first time in recent history, sustainable fund departures outpaced arrivals” in the three months September, Chicago-based researcher Alyssa Stankiewicz wrote.Three new funds were launched while thirteen closed in this category. One existing fund took on the “sustainable” label and four other funds moved away from that mandate.
A few weeks ago, David Moon, president of Moon Capital Management, offered his insight on this trend.
Environmental, social and governance mutual funds and other investment products were created as marketing gimmicks – with no real economic basis – so I never expected them to last. But neither did I expect their whimpering demise so quickly. Some of the largest investment firms are shuttering ESG-labeled funds this year, after spending several years trying to capitalize on increasing and widespread interest in social responsibility.BlackRock, Hartford, Janus, Columbia and Fidelity have all closed or announced the coming closures of funds purporting to promote good corporate governance practices, sustainable energy policies and social justice. What these swift ESG fund birth-to-death cycles remind us is that while some people use their investment decisions to virtue signal, if it costs them money, they won’t do it forever….The environmental part of the ESG term is important, but it is almost impossible to define and measure the environmental impact of a large organization with decimal precision – which is why S&P no longer issues ESG scores linked to its credit analysis. Someone finally realized that the ESG measurement charade couldn’t continue with a system that determined cigarette company Phillip Morris was more “environmentally sustainable” in its business practices than Tesla.
If something can’t continue, it isn’t “sustainable.”
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