The huge drop in ESG-informed assets in the US appears to be replicating across the globe. In Europe, investment firms are starting to remove ESG labels from funds amid tougher rules in the region, and Asian regulators are also setting tougher standards.
ESG purists have long called for a market reset amid signs the label was being applied too liberally. The label has been attached to everything from swaps and other derivatives to repurchase agreements. Some ESG fund managers even held Russian government bonds until shortly before Vladimir Putin invaded Ukraine.
In its new investigation, US SIF required institutions to submit more “granular information” about their ESG mainstreaming. In addition, several money managers reported “a moderate to steep decline” in ESG-linked assets, which may be related to the US Securities and Exchange Commission’s initiative for greater transparency around the consideration of ESG assets. ESG factors on the part of the funds, the group said, without identifying the companies.
This year has been “extraordinary” and there have been “multiple regulatory proposals, as well as accusations of greenwashing and political attacks by some legislators,” said Lisa Woll, executive director of US SIF.
SIF organizations in other regions are making similar revisions to their methodology, Woll said during a presentation on the latest findings.
US SIF focused on what it calls ESG incorporation strategies to account for the assets. These include what the group calls ESG mainstreaming, positive/best-in-class assessment, negative assessment, impact investing and sustainability-themed investing.
As in previous editions, the US SIF investigation focused on two main themes:
- Investors who use ESG criteria to build portfolios.
- Investors submitting shareholder resolutions.
Together, the strategies represented about $10.6 trillion of assets at the start of the year. After adjusting for double counting, the total figure dropped to $8.4 trillion net, which is equivalent to about 13% of total US assets under professional management, the US SIF reported.