Record US$20 billion pulled from ESG funds in US after Republican party attacks
US FUND managers trying to sell ESG strategies just had their worst year ever.
According to fresh data provided by Morningstar, US sustainable funds suffered almost US$20 billion of net redemptions in 2024, up from roughly US$13 billion in 2023. Funds had seen inflows in previous years, the market researcher’s data showed.
It is the latest sign that environmental, social and governance (ESG) metrics are under siege in the world’s largest economy. The Morningstar data come as Wall Street firms spanning JPMorgan Chase to BlackRock all back away from major climate finance organisations that just a few years ago were popular among bankers and investors.
Last year marked a “turbulent” period for ESG, said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, in the report.
Fund managers trying to sell the strategy faced “increased politicisation of ESG issues, continuously high interest rates, greenwashing concerns, and a general preference for conventional strategies in a bull market”, she said.
And with US president-elect Donald Trump returning to the White House for a second term on Monday (Jan 20), ESG is now facing a “very uncertain” future, Bioy said.
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Taking a hit
Withdrawals from ESG funds contrasted with inflows to conventional funds, which attracted about US$740 billion of net new money, according to Morningstar. Bioy pointed to the general underperformance of ESG as a fund strategy as a reason for the development.
Funds exposed to ESG stocks such as wind and solar have been particularly hit. And in the moments right after Trump’s election victory, those stocks suffered a deep sell-off as investors weighed the ramifications of having a president whose public statements on energy have been pro-oil and anti-wind-power.
ESG had its heyday during the pandemic, when interest rates were at crisis-lows and a stagnation in economic production drove down demand for energy. Since then, an energy crisis, soaring inflation and higher interest rates have pummelled green returns, opening the door for sceptics to make their case.
Against that backdrop, the Republican Party has zeroed in on ESG and climate finance as key emblems of what it describes as a “woke” perversion of profit-seeking capitalism.
Morningstar also noted that ESG product development “dried up” last year, with only 10 new sustainable funds making it to the shelves last year, the lowest level in a decade.
Parnassus Investments, the US’s largest sustainable investor, faced the worst redemptions, at US$7.3 billion in total, Morningstar said. Meanwhile, Vanguard Group, which was the first major money manager to abandon the Net Zero Asset Managers initiative back in 2022, was the bestselling firm for sustainable funds last year.
“Under the new Trump administration, we may see litigation pressures exacerbate ‘greenhushing’, where companies downplay their sustainability efforts,” Bioy said. “All these developments bring new challenges to investors interested in sustainability-focused investments.”
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