Investors in sustainable funds sold in May and went away, high-profile Morningstar researcher Jeffrey Ptak noted Monday.
The war in Ukraine and higher gas prices overall have dampened the once rosy outlook for environmental, social and governance (ESG) funds in recent months, with large asset managers backing away and more pundits and politicians criticizing the strategy. Yet Ptak believes the sizable amount of assets flooding the space meant redemptions were due.
“May was [the] first month of outflows for ‘sustainable’ (i.e., intentional ESG) funds in last three years,” Ptak tweeted Monday afternoon. “These funds have gathered a lot of assets in recent years, so not a huge surprise to see some redemptions amid choppier market conditions but still worth watching.”
He then listed those with the largest outflows, noting the “first two could reflect Blackrock model adjustments, not sure.”
- iShares ESG Aware MSCI EM ($-1.1B)
- iShares ESG Aware MSCI US (-0.5)
- iShares Global Clean Energy (-0.2)
- WisdomTree EM ex-State Owned (-0.2)
- Parnassus Core Equity (-0.2)
BlackRock said in a May report that many of the “more prescriptive climate-related proposals are attracting lower levels of investor support” due to the constraints they place on corporate management teams amid increasing volatility. The comments were largely interpreted to mean the investment behemoth would back away from its strict adherence to ESG protocols spearheaded by CEO Larry Fink.
Politicking and performance
Billionaires Peter Thiel, Elon Musk, and Charlie Munger have each recently criticized ESG, and both The Wall Street Journal and The New York Times published pieces noting the political blowback from Republicans. Former Vice President Mike Pence said states should “rein in” ESG inclusion in public pension funds.
And while the Department of Labor is committed to ESG and climate initiatives—specifically rules involving proxy voting and climate-related financial risk—the SEC extended its comment period on proposed climate-related disclosures by U.S companies. The move came after Republicans objected to a ‘scorched earth rule-making agenda.’”