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Investors pull cash from ESG funds as performance lags

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By illuminem briefings

· 2 min read

illuminem summarizes for you the essential news of the day. Read the full piece on the Financial Times or enjoy below:

🗞️ Driving the news: Global investors have withdrawn a net $40 billion from environmental, social, and governance (ESG) equity funds in 2024 due to underperformance, scandals, and political opposition
• This marks the first year of sustained negative flows for the sector, with April seeing a record monthly net outflow of about $14 billion

🔭 The context: ESG funds have faced criticism and scrutiny, including a greenwashing scandal involving German asset manager DWS and political attacks from US Republicans
• The sector, once seen as a promising investment, has suffered from poor returns in clean energy and missed gains in fossil fuels

🌍 Why it matters for the planet: The retreat from ESG funds reflects challenges in aligning investments with sustainability goals
• Despite the backlash, addressing environmental and social risks remains crucial for sustainable development and climate action

⏭️ What's next: While ESG equity funds face withdrawals, ESG bond funds continue to attract investments, with $22 billion in inflows this year
• The focus on sustainable investing may shift towards understanding environmental and social risks rather than relying solely on the ESG label

💬 One quote: “Behind the curtain, there will be substantially more effort by investors to understand environmental and social risks. That will continue to grow, and I actually don’t care too much if we continue to call it ESG.” — Todd Cort, Yale School of Management

📈 One stat: ESG equity fund outflows in Europe reached $1.9 billion in April 2024

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