A new data analysis found that financial investments into global ESG — or environmental, social, and governance — funds were cut in half last year. Experts attribute the poor performance to the prevalence of anti-ESG sentiment and low returns on investment.
What's happening?
Reuters reports that ESG funds worldwide are experiencing a rapid loss of investor interest. In Europe — the leading market for ESG funds with 84% of global assets — 351 ESG funds closed in 2024, outpacing 235 fund launches.
An analysis by research firm Morningstar Sustainalytics cites low returns and anti-ESG campaigns in the U.S. as driving factors pushing investors away from the asset class. Stronger EU regulation of ESG funds is also a contributing factor, with some asset managers closing or rebranding funds to abide by new, stricter greenwashing rules. According to Morningstar data, 115 funds dropped ESG-related terms in 2024 due to these new regulations.
In the U.S., only 10 ESG funds came to market in 2024, while 71 ESG funds merged or closed. Another 24 dropped their ESG-focused mandates, according to Morningstar.
Morningstar tracks 5,502 European ESG funds and 621 U.S. ESG funds.
Reuters also reports inflows to global ESG funds dropped by $36 billion in 2024, the biggest dip since 2018. Morningstar told Reuters that ESG funds were hit particularly hard last year due to "high interest rates hitting clean energy and other green stocks and climate-skeptic Donald Trump elected as U.S. president."
Given this climate, U.S. investors pulled $19.6 billion from ESG funds last year. This marks nine consecutive quarters of outflows from ESG funds in the U.S., Morningstar reports
But it isn't all bad news. Europe still booked $52.4 billion in inflows for 2024. Despite reduced fund flows, global ESG funds reached an all-time high of $3.2 trillion by the close of 2024, an 8% increase from 2023.
Why are ESG funds important?
Being intentional with your dollars is a major way consumers can hold corporations accountable for their actions. For those looking to invest, ESG portfolios provide the opportunity to make sure your money goes toward funds that reflect sustainable values.
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Cost 💰 ESG funds encourage investors to consider factors outside of financial gain when investing, like social and environmental responsibility. Sustainable funds also encourage businesses to prioritize ESG goals to make their companies appealing to investors. This helps support values like energy conservation, waste management, labor standards, equal employment opportunities, ethical business practices, and more.
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What's being done to support ESG fund success worldwide?
ESG investing isn't going anywhere — just like the social and environmental movements the investment strategy prioritizes. ESG investing has been a mainstream financial strategy since the 1960s, rising to popularity along with the Civil Rights Movement and the boycotting of companies that supported the Vietnam War. But that doesn't mean ESG funds won't take a hit with the current climate around social and environmental issues.
As Reuters notes, Trump has already pushed back against ESG areas, like diversity, in his first month as president. Especially concerning to ESG funds is Trump's commitment to the dirty energy industry, which many ESG portfolios exclude due to their pollution profiles.
With the U.S.'s global influence on policy and progress, this could indicate further setbacks for ESG fund growth. But the best way to support ESG fund growth is by, well, investing in ESG funds. If you're considering investing — or even if you're just banking — be sure your values and finances align.
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