By Julia Horowitz, CNN Business
During the market recovery from the pandemic, investors pumped billions of dollars into products that promoted good environmental, social and governance practices, buying into the promise that one could do well financially while doing good.
So-called “ESG” and responsible investing funds saw assets under management peak above $8.5 trillion in late 2021. Now, they stand closer to $6.6 trillion, according to new data from Refinitiv Lipper provided exclusively to Before the Bell.
Breaking it down: ESG investing has taken a huge hit as the broader market has sold off on concerns about the war in Ukraine and recession fears.
The big reason? ESG funds often favor fast-growing companies and technology names that are getting slammed right now, as investors turn to stocks with reliable cash flows and solid value.
An important distinction: Only a small part — 3% — of the decline in assets under management is because investors are bailing, according to Bob Jenkins, the head of Lipper research. Most of the drop is tied to the fall in the value of ESG holdings.
This is “by no means representative of a run for the exits,” Jenkins said.
The hype around ESG investing has taken a hit as high fuel prices fan a cost-of-living crisis, encouraging governments to ramp up discussions about securing energy supplies. But Jenkins thinks the longer-term direction of travel is still clear.
“As these near-term economic shocks subside, the very real [ESG] issues of things like climate change and equality will still be very present,” he said.
ESG assets could also be due for a rebound if investors decide prices are finally cheap enough and start hunting for deals.
