Despite continuing discussions concerning climate change and sustainability, ESG (Environmental, Social, and Governance) funds are experiencing a drop in appeal. The main factors contributing to this decline include regulatory tightening, exposure of greenwashing - the practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, technology or company practice - and a marked return to investments in oil and gas. Is this a temporary diversion, or are we on the cusp of a major shift in investment strategy? Let's delve deeper into these changes.
1. ESG (Environmental, Social, and Governance) funds have seen a drop in appeal despite ongoing discussions about climate change and sustainability.
2. The main contributing factors to this decline are regulatory tightening, exposure of greenwashing, and renewed interest in investments in oil and gas.
3. Regulatory authorities across the globe have become stricter about false ESG claims, leading to an increase in greenwashing exposure.
4. With economic recovery being spurred by vaccination campaigns, oil and gas investments have surged, making them more profitable short term.
5. These factors have significantly eroded the attractiveness of ESG funds, sparking curiosity as to whether this is a temporary interest shift or a sign of a larger change in investment strategies.
According to Morningstar, inflows into sustainable funds in Europe fell 28% in the first quarter of 2021 compared to the last quarter of 2020.
Despite the prevalent perception, ESG funds are not necessarily the safe haven they were once considered. The aforementioned factors significantly contribute to eroding the allure of such investments. Regulatory authorities across the globe are becoming stricter about false ESG claims, resulting in increased cases of greenwashing exposure. Additionally, economic recovery spurred by vaccination campaigns has led to a surge in oil and gas investments, making this sector more profitable in the short term. Consequently, the appeal of ESG funds has seen a noticeable decline.