Displaying items by tag: esg

If a new bill in the Senate gets passed at some point, ESG investing in retirement plans may become a thing of the past. On July 26th, Senator Mike Braun of Indiana introduced The Maximize Americans’ Retirement Security Act (S. 4613), legislation that would clarify that the fiduciary duty of plan administrators is to select and maintain investments based solely on “pecuniary” financial factors. Based on the legislation, pecuniary factors are defined as any factors that a fiduciary prudently determines are expected to have a material effect on the risk or return of an investment. The bill, which was co-sponsored by seven other GOP senators, would curb the Department of Labor’s efforts to make it easier for plan fiduciaries to consider ESG factors when selecting plan investments. ESG investing has become a hot political topic as of late, and its recent underperformance during the bear market has only further added to the scrutiny.

Finsum: With ESG becoming a hot political issue, GOP Senators introduced a bill that would curb the DOL’s efforts to make it easier for plan fiduciaries to consider ESG factors in plan investments. 

With apparent eroding client interest, ESGs might be losing some of their bang, according to thinkadvisor.com. In the past several months, 31% of advisors reported taking questions about ESG or socially responsible investing from clients. That’s down from 39% who indicated as much last year and in 2020.

Thirty four percent of advisors were found to tap or recommend these strategies to clients this year,  according to the survey. While that’s an uptick of 2 percentage points from 2021, it receded from a high of 38% in 2020.

Investmentnews.com reported in June that, in recent years, while a burgeoning percentage of financial advisors folded ESG investments options into their business, more now indicated they intend shore back on suggesting such investments, according to a survey.

While financial advisor use or recommendation of environmental, social and governance or ESG investing strategies have moved consistently along over the past four years, according to prnewswire.com. However, during the next  12 months, it could slip in use, according to the 2022 Trends in Investing Survey, conducted by the Journal of Financial Planning and the Financial Planning Association, as provided to prnewswire.com by the Financial Planning Association.

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.