Launches of new funds focused on environmental, social and corporate governance (ESG) goals hit their lowest level in three years in the first quarter of 2023, according to Reuters Tuesday.
With just 113 new ESG funds launching worldwide, the sector saw its weakest quarter of growth since the first quarter of 2020, Reuters reported, citing data from financial analytics firm Morningstar. At least 200 such funds have been announced each quarter since, but concerns about an economic slowdown and new European regulations likely contributed to the pullback.
Although they remained popular with investors, ESG firms struggled in 2022, and recession fears prompted investors to add just $29 billion to such funds in the first quarter of 2023, down from $38 billion in the final quarter of 2022, Reuters reported. Some funds in Europe saw benefits from the rising anti-ESG trend in the U.S., where some Republican lawmakers have pulled billions from major asset managers like BlackRock, in protest of their firms’ ESG policies.
Despite this, Europe was the primary driver of the collapse in new ESG funds, as companies adjusted to new rules that aimed to limit the scope of what counted as a “sustainable investment” and require firms to provide additional information for their funds to qualify, Reuters reported. A Daily Caller News Foundation investigation in March found that representative of Swiss firm South Pole — which has been accused of selling “fictitious” carbon offsets, an allegation it denies — met with officials from the U.S. Securities and Exchange Commission (SEC) and were frequently cited in the SEC’s proposed rule to require U.S. companies report climate-related financial data.
“The decline in new products can be partly attributed to the overall market sentiment damped by the challenging macro backdrop but also to greenwashing accusations and the ever-evolving regulatory environment,” Morningstar said, according to Reuters. Overall, ESG funds managed $2.74 trillion by the end of March, short of the record $3 trillion managed in late 2021.
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