ESG fund launches drop sharply amid tighter rules and backlash
Published: 12:56 10 Jan 2024 GMT
Launches of funds featuring environmental, social, and governance (ESG) themes slowed significantly in the second half of 2023, as political opposition grew, performance wobbled and tighter labelling rules loomed.
Only six such ESG funds debuted in the period, according to data from Morningstar, a steep decline from 55 in the first half and an average annual launch of nearly 100 between 2020 and 2022.
This downturn coincides with heightened scrutiny over greenwashing and companies' and asset managers' sustainability claims.
Several fund names have shed their ESG labels, with asset manager Abrdn set to remove “sustainable leaders” from two funds, as per a U.S. Securities and Exchange Commission filing.
Morgan Stanley (NYSE:MS) and UBS made similar moves last year, amidst growing regulatory and political scrutiny of ESG strategies.
Regulators in the UK are also launching anti-greenwashing rules, with all investment funds portrayed as green and sustainable needing to conform from this summer.
While ESG funds outperformed traditional ones from 2019 to 2021, they faltered in the following two years, Morningstar's data showed.
The drop in ESG fund launches reflects not just performance issues but also rising criticism in the US, particularly from Republicans and other anti-woke campaigners, over perceived excessive focus on social and environmental commitments.
