Why ESG Investing Might Never Recover
The ESG brand probably has its best days behind it. Following a three-year craze for investment products focused on environmental, social and corporate-governance concerns, the percentage of newly created funds in the U.S. and Europe with ESG in their name has fallen from a peak of 8.3% to just 3.3%, according to an analysis of quarterly data by Morningstar Direct.
Likewise, online searches for “ESG investing" have plummeted back to mid-2019 levels, according to Google Trends. Mentions of the term in company analyst calls have dropped 59% from their quarterly peak in 2022, FactSet data suggest. One explanation is the collapse of the clean-energy stocks most readily associated with the ESG movement.
Flagging growth in electric-vehicle sales has hit sector behemoth Tesla. The S&P Global Clean Energy index, which lists solar-panel maker First Solar and Danish wind-turbine giant Vestas among its top constituents, has lost 31% since the start of 2023 as renewable-energy projects have been shelved. That compares with returns of 27% for global stocks.
The rise of ESG investing between 2019 and 2022 coincided with a surge in clean-tech valuations, and now the reverse is happening. Investors have pulled $2.2 billion from funds dedicated to decarbonization since the start of the year, according to EPFR, and the outflows are getting larger every week. There is a risk that ESG was an investment fad rather than a financial revolution extending across all industries.
The term was the product of an uneasy three-way alliance. On one side were ethically driven investors, who are particularly widespread in Scandinavia and include pension funds, universities and religious organizations united in wanting to shun contentious firms. On
. Read more on livemint.com
