ESG fund launches show sharp slowdown

investmentnews.com:

At some of the world’s biggest asset managers, ESG fund launches are quietly stalling.

BlackRock Inc., Deutsche Bank AG’s DWS Group, Invesco Ltd. and the asset management arm of UBS Group AG are among firms that have cut the number of new funds with environmental, social and governance mandates, according to data provided by Morningstar Direct. 

This year through the end of May, just over 100 ESG funds were launched globally, putting the industry on track to fall well short of levels seen in recent years, the data show. By comparison, there were 566 ESG fund launches in 2023, which was down from the 993 seen in 2022. What’s more, the 16 ESG funds opened in May represent the lowest monthly tally since the beginning of 2020.

Against a backdrop of political attacks in the US combined with a crackdown on greenwashing in Europe, it’s the latest sign that the finance industry is cooling to the ESG label. Since its pandemic-era heyday, a cocktail of higher inflation, higher interest rates and a slump in clean-energy stocks has driven down ESG fund performance. Those doing well are generally packed with tech stocks, many with questionable ESG attributes.

ESG also continues to find itself under attack in the US, where the Republican Party, has imposed bans and threatened lawsuits against perceived perpetrators. And in Europe, stricter ESG fund-naming rules look set to get the label removed from some passively managed portfolios.

According to Morningstar, BlackRock has started four new ESG funds this year, compared with 36 in 2022 and 23 last year. DWS is down to three this year from 25 in 2023. Invesco has launched just one ESG fund so far in 2024, compared with 12 in 2023. UBS has introduced six sustainable funds this year, down