{"id":84544,"date":"2024-05-30T00:00:00","date_gmt":"2024-05-30T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/climate\/2024\/05\/30\/new-deposits-in-esg-funds-plummeted-57-y-o-y-in-2023-heres-why\/"},"modified":"2024-05-30T00:00:00","modified_gmt":"2024-05-30T00:00:00","slug":"new-deposits-in-esg-funds-plummeted-57-y-o-y-in-2023-heres-why","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/climate\/2024\/05\/30\/new-deposits-in-esg-funds-plummeted-57-y-o-y-in-2023-heres-why\/","title":{"rendered":"New deposits in ESG funds plummeted 57% y-o-y in 2023, here\u2019s why"},"content":{"rendered":"<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>Can ESG funds survive the scrutiny + bad press? <\/strong>The demand for sustainable funds plummeted last year due to political backlash, greenwashing concerns, and rising conventional energy prices with ESG funds drawing only <a target=\"_blank\" href=\"https:\/\/www.reuters.com\/sustainability\/sustainable-finance-reporting\/esg-funds-suffer-weaker-demand-despite-help-tech-sector-performance-2023-12-21\/\" style=\"\" rel=\"noopener\">USD 68 bn in net new deposits<\/a> in 2023 compared to USD 158 bn in 2022 and USD 558 bn in 2021. The downward trend comes despite major western banks pledging to pour <a target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/features\/2024-03-27\/ubs-banker-s-comments-highlight-challenges-facing-green-banking?srnd=green\" style=\"\" rel=\"noopener\">between USD 750 bn to USD 2.5 tn<\/a> per bank into green and sustainable agreements by the end of this decade. While some say that ESG policies negatively impact the fossil fuel industry to the detriment of the economy, others believe it isn't going far enough to address climate change.<\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>US fossil fuel lobbyists are behind a strong anti-ESG campaign: <\/strong>Since 2022, a group called Consumers\u2019 Research launched a USD multi-mn lobbying campaign against banks engaging in ESG funding, arguing that the company participating in ESG financing is misusing retirement funds, according to <a target=\"_blank\" href=\"https:\/\/www.axios.com\/2022\/08\/18\/blackrock-esg-conservatives\" style=\"\" rel=\"noopener\">Axios<\/a>. The anti-ESG movement also argued that incentivising green funding creates market distortion, risks greenwashing, lowers investment return, reduces shareholder value, and generally impedes economic growth, according to <a target=\"_blank\" href=\"https:\/\/www.knowesg.com\/featured-article\/the-anti-esg-movement-explained\" style=\"\" rel=\"noopener\">KnowESG<\/a>.<\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>Blackrock took the brunt of it: <\/strong>The campaign led to the <a target=\"_blank\" href=\"https:\/\/enterprise.news\/climate\/en\/news\/story\/0b529f5d-1993-479c-a2f2-79f69cee56fb\/Anti-ESG%20US%20fund%20withdraws%20USD%2013.3%20bn%20from%20Blackrock\" style=\"\" rel=\"noopener\">withdrawal of USD 13.3 bn<\/a> in investments from giant asset management firm Blackrock. The <a target=\"_blank\" href=\"https:\/\/enterprise.news\/climate\/en\/news\/story\/52da895d-51eb-4bd7-8e6e-6dd0733acce1\/today:-opec-fund-raises-usd-1-bn-in-maiden-sustainability-bond-%2B-masdar-confirms-plan-to-issue-maiden-green-bond-in-2023\" style=\"\" rel=\"noopener\">narrative around ESG investing<\/a> has become riddled with personal attacks and the problems \u201cdemonized,\u201d Blackrock CEO Larry Fink said. BlackRock \u2014 which had some USD 8.59 tn in assets under management as of 2022 \u2014 has become a \u201cpolitical punching bag\u201d for both right- and left-leaning forces when it comes to the issue of ESG investing.<\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>And has subsequently made a 180 degree turn in its approach:<\/strong> BlackRock has scaled back its commitment to investor group Climate Action 100+ \u2014 a coalition of investors that pushes companies to reduce their carbon emissions. There was also a shift in Fink\u2019s 2023 <a target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-03-26\/larry-fink-calls-on-boomer-generation-to-fix-retirement-crisis\" style=\"\" rel=\"noopener\">letter to investors<\/a> where he deemphasized ESG investing, in contrast to previous years where Blackrock <a target=\"_blank\" href=\"https:\/\/www.linkedin.com\/pulse\/whos-behind-anti-esg-movement-tim-mohin\/\" style=\"\" rel=\"noopener\">pushed back<\/a> against lobbyists, calling the anti-ESG campaign \u201cpolitically driven misinformation\u201d while <a target=\"_blank\" href=\"https:\/\/www.esgtoday.com\/blackrock-launches-esg-bond-fund-with-500-million-investment-from-scottish-widows\/\" style=\"\" rel=\"noopener\">continuing ESG investments<\/a>. JP Morgan Asset Management, State Street Global Advisors, Invesco, Bond manager PIMCO <a target=\"_blank\" href=\"https:\/\/enterprise.news\/climate\/en\/news\/story\/c5a3aece-b9a5-4249-8745-04b68174919a\/today:-oman%25e2%2580%2599s-sohar-freezone-inks-lease-agreement-for-battery-recycling-plant-%2B-acwa-power-gets-the-green-light-to-secure-financing-for-solar-projects\" style=\"\" rel=\"noopener\">also left<\/a> the coalition, and Dutch pension fund PFZW also said it will <a target=\"_blank\" href=\"https:\/\/enterprise.news\/climate\/en\/news\/story\/bc1d2628-74f0-4e16-9ca9-f28425189914\/india%25e2%2580%2599s-jsw-signs-mou-for-usd-5-bn-investment-in-ev-manufacturing\" style=\"\" rel=\"noopener\">step away from the talks<\/a> soon.<\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>The divestment is making waves in Europe too: <\/strong>European banks aren\u2019t happy about new requirements from the European Securities and Markets Authority (ESMA) for ESG and sustainability funds, causing the market to see its first ever global quarterly outflows, <a target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-02-05\/deutsche-bank-fund-arm-says-new-esg-rules-to-trigger-divestments\" style=\"\" rel=\"noopener\">Bloomberg<\/a> reported. ESMA proposed the opposed criteria in 2022 \u2014 when an abundance of unambitious funds hit the market under the guise of ESG \u2014 due to worries that the greenwashed funds would affect investor confidence and ultimately ruin ESG\u2019s reputation. Most of the affected funds will see up to 3% divestment, says head of ESG advisory at DWS Group Dennis Haensel. Deutsche Bank will divest more than 5% from some of its ESG funds as a result of the new criteria. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>And Asia\u2019s ESG funds are experiencing losses as well:<\/strong> Green funds in Asian countries \u2014 excluding Japan and China \u2014 saw a 63% drop in Q1 2024 from Q4 2023\u2019s USD 1.7 bn in net new investment to USD 622 mn, the <a target=\"_blank\" href=\"https:\/\/www.ft.com\/content\/fea25a39-6707-4144-9651-4c43ad494bd2\" style=\"\" rel=\"noopener\">Financial Times<\/a> reported, citing data from Morningstar\u2019s <a target=\"_blank\" href=\"https:\/\/ent.news\/2024\/5\/409.pdf\" style=\"\" rel=\"noopener\">Global Sustainable Fund Flows (pdf)<\/a> report. Total sustainable fund assets in the continent excluding Japan \u2014 which together make up 2% of global sustainable funds \u2014 saw a 1.6% increase compared to the last quarter. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>While some ESG funds have been making major gains\u2026 <\/strong>There is evidence of sustainable funds performing better than the rest of the market, for example, including the Dow Jones Sustainability Index had a 21.7% total return at the end of last year while S&amp;P Global Broad Market Index \u2014 of which it is a subset \u2014 only got a total return of 17%, <a target=\"_blank\" href=\"https:\/\/www.reuters.com\/sustainability\/sustainable-finance-reporting\/esg-funds-suffer-weaker-demand-despite-help-tech-sector-performance-2023-12-21\/\" style=\"\" rel=\"noopener\">Reuters<\/a> continued. The sustainability index also outperformed the broader market in 2022 even when investors were losing money. The total fund assets at the end of last year also went up to USD 2.56 tn from 2022\u2019s USD 2.35 tn and responsible funds did better than others, according to the outlet. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>\u2026 Other investors are still not convinced: <\/strong>Banks that had previously made net zero pledges and calls for fossil fuel divestment have not stood by their advocacy and instead worry about the money they would lose from countries dependent on conventional energy sources, <a target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/features\/2024-03-27\/ubs-banker-s-comments-highlight-challenges-facing-green-banking?srnd=green\" style=\"\" rel=\"noopener\">Bloomberg<\/a> reported. Heavy industries \u2014 power, automotive, oil and gas, steel, coal and cement \u2014 account for 15% of banks\u2019 capital meaning losing those high carbon sectors would take out a big portion of their finances. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>It seems like oil and gas prices are the only thing that can change their minds:<\/strong> ESG investing boomed in 2020 and 2021 during the Covid-19 pandemic as low oil prices spurred more investors to diversify beyond fossil fuels, and as fund managers sought to appear more climate-conscious, <a target=\"_blank\" href=\"https:\/\/www.reuters.com\/sustainability\/sustainable-finance-reporting\/esg-funds-suffer-weaker-demand-despite-help-tech-sector-performance-2023-12-21\/\" style=\"\" rel=\"noopener\">Reuters<\/a> said. The category started to fall out of favor in 2022 as conventional energy prices soared.<\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>And some are shifting the blame onto policy: <\/strong>Banks are either adding caveats to their coal-financing restrictions, or shifting the blame entirely to policy makers, Bloomberg continued. To get to net zero, policy makers have to finance the transition, HSBC Chief Sustainability Officer Celine Herweijer argued. The bank also stressed that their clients can only reach the net zero goal if there is supporting carbon-reduction technology to help. \u201cFinance can only go so far if the enabling policy environment isn\u2019t there,\u201d a chief investor in a UK pension\u2019s board said, reiterating Fink\u2019s sentiment that investors should not be expected to influence policy. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>Or, they\u2019ll chalk it up to greenwashing: <\/strong>ESG has also been getting a bad rap from growing greenwashing allegations \u2014 instances rose <a target=\"_blank\" href=\"https:\/\/www.reuters.com\/sustainability\/banks-behind-70-jump-greenwashing-incidents-2023-report-2023-10-03\/\" style=\"\" rel=\"noopener\">70%<\/a> in 2023 \u2014 despite the allegations lacking evidence. The increased greenwashing claims were mainly allegations made by European financial institutions rather than verified claims, leading the European Banking Federation to suspect that the rise is driven by banks\u2019 sustainability commitments being put under the microscope. <\/p>\n<p style=\"padding:0;margin:0;line-height:1.15;orphans:2;widows:2;text-align:left\"><strong>But environmentalists are calling them out: <\/strong>Green finance can be greatly impactful and make up for lost revenue from \u201cdirty clients\u201d if banks lean into it, but by continuing with their \u201cdoublespeak,\u201d \u2014 where they simultaneously call for sustainability but find ways to not follow through \u2014 they miss out it, Chief Catalyst at Climate Safe Lending Network James Vaccaro told Bloomberg. Activists are also worried that the financial firms will continue to seek out policy loopholes to absolve them of climate action. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Banks are scaling back their climate pledges in response<\/p>\n","protected":false},"author":1,"featured_media":84545,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"newspack_ads_suppress_ads":false,"newspack_popups_has_disabled_popups":false,"newspack_sponsor_sponsorship_scope":"","newspack_sponsor_native_byline_display":"inherit","newspack_sponsor_native_category_display":"inherit","newspack_sponsor_underwriter_style":"inherit","newspack_sponsor_underwriter_placement":"inherit","ep_exclude_from_search":false,"_primary_brand":0,"newspack_featured_image_position":"","newspack_post_subtitle":"","newspack_article_summary_title":"Overview:","newspack_article_summary":"","newspack_hide_updated_date":false,"newspack_show_updated_date":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[243],"tags":[385,11,164,210],"brand":[],"newspack_spnsrs_tax":[],"class_list":["post-84544","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-green-finance","tag-blackrock","tag-enterpriseclimate","tag-green-finance","tag-usa","wpautop","entry"],"acf":{"mongo_id":"b46019be-ae7e-4b54-bba2-94e0cb539cc4","order":"6","is_powered_by":false,"story_type":"1","photo_url":"https:\/\/ent.news\/2024\/3\/2391.jpg","photo_position":"above","homepage_title":"","full_issue_title":"New deposits in ESG funds plummeted 57% y-o-y in 2023, here\u2019s why","related_issue":[84534],"teaser":"Banks are scaling back their climate pledges in response","voice_url":"https:\/\/s3.us-east-1.amazonaws.com\/ent.news\/audio\/2024\/5\/.d25831e7-b034-4617-a627-612fd72c9f3b.mp3"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.1 (Yoast SEO v27.1.1) - 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