End of the world of woke: Investors turn back on green investing
Investors and asset managers have turned their back on green investments amid high interest rates and 'greenwashing' concerns
Experts suggest the drop is due to soaring interest rates which have bumped up borrowing costs
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Investors and asset managers have turned their back on green investments amid high interest rates and "greenwashing" concerns.
According to data from global funds network Calastone, almost £2.5bn has flowed out of funds centred on environmental, social and governance issues (ESG).
Over the past year, the S&P Global Clean Energy Index - a measure of businesses investing in renewable energy - has also reduced by more than 25 per cent.
Experts suggest the drop is due to soaring interest rates which have bumped up borrowing costs.
Over the same period, the S&P 500 Energy Index - a measurement of other energy industry including oil companies, was up 2 per cent.
Just 102 new sustainable funds have been launched in the most recent quarter of 2023 - a huge reduction compared to 350 in 2021.
The number of funds adding “ESG” to their names has also plummeted across Europe, which has sparked “greenwashing” concerns.
In 2021, ESG hit its peak following a spike in DIY investment caused by the Covid lockdown restrictions.
Many younger investors did not want to put money into businesses that generated a profit without also considering the impact of their corporate policies on the world.
“There are three things that guide fund managers: ‘what can we sell most of? What can we sell most of? What can we sell most of?'," Peter Hargreaves, founder of Britain’s biggest stock broker Hargreaves Lansdown told The Telegraph.
Laith Khalaf, from stockbroker AJ Bell added: “Three years ago ESG was everywhere, fund groups were launching new products and marketing them like crazy, and the saturation point was probably found pretty quickly.
“All that money flowing in helped ESG funds perform well, attracting more cash from those who follow fund performance tables.
"After that initial gold rush, ESG funds are now part of the furniture and having to fight hard for inflows like all other sectors.”
In the year to February, the UK All Companies funds sector was up 3.12 per cent, while the sustainable equivalent funds from the sector were down 0.27 per cent, according to brokers Interactive Investor.
Jock Glover, of research firm Square Mile, says: “When inflation started rising strongly, and central banks subsequently started raising interest rates, those growth stocks underperformed some of the old economy stocks, such as oil and mining, which many of those funds would naturally avoid.”
