Investment funds based on Environmental, Social, and Governance (ESG), have recently taken a substantial hit as investors have turned away from the investing opportunities. Who would’ve guessed that an investment strategy not based on pursuing profitability would be underperforming?
According to recent data from Morningstar, investment funds tied to ESG-based investing have lost nearly $3 billion during the third quarter of 2023. Furthermore, such funds were closing at a faster rate than they were opening during this period.
While most funds in the United States did experience investor withdrawal, ESG, in particular, was hit the hardest. Morningstar continued to illustrate the disappointing performance, claiming ESG funds lost .85% of their value while funds overall declined approximately 0.02%. Investment opportunities centered around the sustainable strategy have endured outflows for four straight quarters as investors cite concerns of regulatory uncertainty and insufficient funds.
According to WhaleWire, a source for finance and crypto news, “Investors have pulled out a whopping $280 billion from “green stocks” globally since its peak in August 2022. Looks like investors have finally figured out that ESG was just a giant go woke go broke scheme.”
Investors have pulled out a whopping $280 billion from "green stocks" globally since its peak in August 2022.
Looks like investors have finally figured out that ESG was just a giant go woke go broke scheme. pic.twitter.com/OBL0q4iZwC
— WhaleWire (@WhaleWire) October 21, 2023
Moreover, while overall fund activity shows more opening than closing, only three new ESG funds were started, while 13 closed. ESG funds exploded in popularity in 2021 amid a favorable low-interest-rate macroeconomic backdrop where much of the overall market performed well. Given the Federal Reserve’s aggressive pace of rate hiking, one might conclude ESG investing was a “low-interest-rate” activity” where investors are now chasing returns in a more challenging environment.
Furthermore, ESG investing has come under fire, particularly from politicians in conservative states seeking legislative action against the funds. For example, Florida is seeking to remove ESG investing from the state’s retirement portfolio to adhere to the fiduciary responsibility of producing returns.
A statement from Governor Ron DeSantis read:
“Today, Governor Ron DeSantis and Trustees of the State Board of Administration (SBA) formally approved measures to protect Florida’s investments from woke environmental, social, and corporate governance (ESG), ensuring that all investment decisions focus solely on maximizing the highest rate of return.” the Florida Governor stated. “Today’s updates to the Florida Retirement System Pension Plan policy and SBA corporate governance proxy voting guidelines build on actions taken last year to clearly define the factors fiduciaries are to consider in investment decisions, ensuring that ESG is prohibited from consideration.”
“Corporations across America continue to inject an ideological agenda through our economy rather than through the ballot box. Today’s actions reinforce that ESG considerations will not be tolerated here in Florida, and I look forward to extending these protections during this legislative session,” DeSantis also said.
Texas is also taking similar action against companies that embrace certain ESG policies that do not align with the values of the state. “The Office of the Attorney General will continue to vigorously enforce our laws that prevent taxpayer funds from going to companies whose ‘ESG’ policies harm Texans or key Texas industries,” Attorney General Ken Paxton said. “Companies who discriminate against firearms businesses and organizations, the oil and gas industry, or the nation of Israel will not enjoy the opportunity and privilege of winning public contracts in Texas,” he continued.
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