ESG troubles

Investors have been pulling out of ESG funds at a record pace over the last two years, with U.S. ESG funds facing $20 billion in outflows in 2024, surpassing the $18 billion recorded in 2023. This trend reflects mounting dissatisfaction, driven in part by significant performance challenges. Since January 2022, for example, the S&P Global Clean Energy Index has plunged 46%. Political and regulatory pressures have further compounded the issue, as investor confidence wanes amid intensified scrutiny over greenwashing and shifting regulatory stances. Last year, a record number of funds removed ESG-related terms from their names, while only a few new funds were launched, and 71 were either liquidated or merged. As Ronald-Peter Stoeferle, Managing Partner of Incrementum AG, rightly mentioned, “when performance is uncertain, 9 out of 10 investors will choose returns over sustainability.” For ESG to regain traction, it may need to reinvent itself and deliver consistent, competitive returns.