Environmental, social and corporate governance, or ESG, investing is on a downward spiral.
Mentions of ESG in company statements and earnings calls have declined significantly since their 2021 peak and BlackRock CEO Larry Fink, an early leader in the adoption of ESG standards, decided to banish the term from his vocabulary, saying it has become too political.
The numbers speak for themselves. The cumulative flow of investments into US ESG funds has been flat to slightly negative since the first quarter of 2022, according to data shared exclusively with CNN by Lipper, a financial data provider.
What's happening: "The US really tells the story of the sharp rise in ESG investing commencing shortly after the market recovered from the initial pandemic sell-off in 2020, only to take on near meme-stock status in the YOLO (you only live once) 2021, work-from-home bull market, then crescendo at the end of 2021," said Robert Jenkins, head of global research at Lipper.
But in 2022, the pace of inflows quickly eased as a confluence of political, geopolitical and market events severely damaged interest in ESG investing.
Russia's ongoing war in Ukraine forced traders to reconsider investing in energy and weapons stocks again.
Increased scrutiny by politicians in red states also played into political differences around ESG.
At least 165 bills and resolutions against ESG investment criteria were introduced in 37, mostly red, states between January and June 2023, according to a recent report from Pleiades Strategy, a climate risk consulting firm.
On top of that turmoil, responsible investing funds faced mighty economic headwinds last year. These funds' outsized investments in tech stocks and lack of energy stocks (which was the only positive sector in 2022), led to noticeable losses last year.
Still, Jenkins says the downturn may ultimately be a good thing. The concept, he said, had become a fad without much substance or meaning.
ESG investing took off and became a buzzword — the "artificial intelligence of six years ago," said Jenkins. "Every single conversation was about ESG, and there's a whole industry built around this," he said. There were companies built on selling ESG information, ESG-related conferences "and it got worn out."
Jenkins says that he's hated the term ESG for years, and so have others in the space. Combining three separate components, environmental, social, and governance, into one rubric is unwieldy and simplifies a complicated investment strategy, he said.
What's next: Going forward, usage of the term ESG will likely continue to wane, says Jenkins. Instead, specific terms such as climate, transition and transparency will begin being used more often.
These terms, which are vague and don't have specific measurement systems attached to them, could mean less clarity for investors looking to put their money in responsible investments. Still, Jenkins has hope that "more focused, thematic metrics can enable investors to target specific impact areas and have a better assurance that their money is actually going to benefit the desired outcome."
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