Record $27 billion pulled from US environmental, social and governance funds
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With US President-elect Donald Trump set to return to the White House, ESG is now facing a very uncertain future.
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NEW YORK – US fund managers trying to sell environmental, social and governance (ESG) strategies just had their worst year ever.
According to data provided by Morningstar, US sustainable funds suffered almost US$20 billion (S$27 billion) of net redemptions in 2024, up from roughly US$13 billion in 2023. Funds had seen inflows in previous years, the market researcher’s data showed.
It is the latest sign that ESG metrics are under siege in the world’s largest economy. The Morningstar data comes as Wall Street firms from JPMorgan Chase & Co to BlackRock all back away from major climate finance organisations that just a few years ago were popular among bankers and investors.
The year 2024 marked a “turbulent” period for ESG, Ms Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, said in the report.
Fund managers trying to sell the strategy faced “increased politicisation of ESG issues, continuously high interest rates, greenwashing concerns, and a general preference for conventional strategies in a bull market”, she noted.
With President-elect Donald Trump set to return to the White House, ESG is now facing a “very uncertain” future, Ms Bioy added.
Withdrawals from ESG funds contrasted with inflows to conventional funds, which attracted about US$740 billion of net new money, according to Morningstar.
Ms Bioy pointed to the general underperformance of ESG as a fund strategy as a reason for the development.
Funds exposed to ESG stocks such as wind and solar have been particularly hit. In the moments right after Trump’s election victory, those stocks suffered a deep sell-off as investors weighed the ramifications of having a president whose public statements on energy have been pro-oil and anti-wind power.
ESG had its heyday during the pandemic, when interest rates were at crisis lows and a stagnation in economic production drove down demand for energy. Since then, an energy crisis, soaring inflation and higher interest rates have pummelled green returns, opening the door for sceptics to make their case.
Against that backdrop, the Republican Party has zeroed in on ESG and climate finance as key emblems of what it describes as a “woke” perversion of profit-seeking capitalism. Morningstar noted that ESG product development dried up in 2024, with only 10 new sustainable funds making it to the shelves, the lowest in a decade.
“Under the new Trump administration, we may see litigation pressures exacerbate ‘greenhushing’ where companies downplay their sustainability efforts,” Ms Bioy said. “All these developments bring new challenges to investors interested in sustainability-focused investments.” BLOOMBERG
