Displaying items by tag: esg
It would be an understatement to say BlackRock has been a leader in ESG the last couple of years but the tides could be turning. There have been massive outflows from ESG in the month of May which has been unusual given the asset classes' widespread popularity where they topped $3.5 billion. BlackRock has been the main source of outflows from IShares ESG Aware MSCI EM and other popular funds. BlackRock has cut two of iShares most popular funds from seven of their ten models. This is potentially a huge blow, as it could signal the firms changing stance in ESG or it could just be smoke and mirror as asset allocations normally change. ESGs inclusion in many model portfolios has been key to its growing popularity.
Finsum: Are ESG investors really so skittish with the tightening in the economy; the long-term prospects for ESG still seem overwhelming.
April and May were a tough couple of months for mutual funds and ETFs as they were the first consecutive months of outflows since 2018. According to fund research firm Morningstar, investors pulled $39 billion out of funds and ETFs in May, following $93 billion in withdrawals in April. May was also the first month in three years that ESG-focused mutual funds and ETFs saw any outflows. Investors pulled a net $3.5 billion in ESG strategies during the month, a first since January 2019. The course change comes after ESG funds saw a record $69 billion in new money in 2021. The outflows are mainly attributed to current market conditions. The ESG investing trend is likely still in fashion and flows are expected to turn around once the market reverses course.
Finsum: ESG funds see the first month of outflows in three years as part of a broader trend in fund outflows due to current market conditions.
Environmental, social, and governance investing has morphed into a behemoth says, industry insiders, and is so far from its roots that a course correction is needed. Experts and pioneers in the field are disappointed by the amount of greenwashing and fudging in order to meet regulatory standards. ESG has ballooned to approximately $40 trillion and most of the gains have come in the last year. Those in the field want better oversight from the government or non-profit third parties rather than those incentivized to be more lenient. Original ESG was created to mitigate environmental risk and incentivize better behavior, but it’s so over bloated and bound to burst. If regulators in the Biden admin step up like they are signaling it could mean catastrophe for ESG investing.
Finsum: More stable guidelines to remove greenwashers are a must, but it will come at a cost.
MSCI Inc. has come out firing against the hedge funds' strategy in dealing with ESG. Many prominent hedge funds, like AQR, have not only invested in ESG but are shorting poor ESG scoring companies in an attempt to raise the cost of capital. MSCI VP of ESG, Rumi Mahmood, says this is not an effective ESG strategy because it decreases transparency and doesn’t align corporate and investor interests. On top of that, he believes shorting poor ESG metrics won’t affect the cost of capital for these companies. MSCI finds that engagement over time is the alternative and better pathway to influence a company's behavior.
Finsum: There is not enough evidence out there as to the effect of short selling on capital formation, however, companies shorting traditional energy have taken a bath.