Displaying items by tag: esg

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. 

Everyone is racing to develop and deliver a new ESG product, and annuities are just the latest on this trend. BlackRock is teaming up with RetireOne and Midland National to deliver an SG option for a Fixed Index Annuity. The index will seek to minimize its exposure to environmental risk and invest in companies with lower C02 emissions, better data privacy, and workforce diversity. ESG assets as a whole could make up 50% or more of assets under management by 2025 and this is an indication of how that trend is entering other industries. Disclosure and ESG risks are prominent considerations for many companies.

Finsum: This is a great option for investors wanting income and ESG to tackle two birds with one stone.