BlackRock’s Dumping ESG Funds. Here’s Whether You Should Do The Same.

BlackRock’s Dumping ESG Funds. Here’s Whether You Should Do The Same.
Theodora Lee Joseph, CFA

2 months ago1 min

Big-money players like BlackRock and StateStreet are ditching environmental, social, and corporate governance (ESG) funds in the US faster than you can say "climate change", dropping more of them this year so far than in the past three years combined. That seems to be making an impact: according to Morningstar Inc., over twenty ESG funds have been shut down this year – just check out the chart above.

That’s not surprising. Plenty of sustainable funds floundered last year because the growth strategies they used underperformed. And the funds are igniting something of a culture war in the US, with Republicans labeling the ESG movement as "woke capitalism". In fact, anti-ESG funds have even started gaining traction.

But that’s not to say that ESG funds are done for. One major underlying issue is that fake funds are promoting responsible messaging but not following through with action, leading to results that don’t line up with their promises. In Europe, regulators are already tightening up labeling rules, in an effort to crack down on any exaggerated claims.

What’s more, certain subcategories of ESG funds are still doing well, particularly ones linked to transitionary and low-carbon strategies. This varying performance within the space could well push investors to explore other ways of being eco-conscious with their money, such as thematic investing. That's when you focus on specific sustainability areas, like water or green energy, instead of the broader ESG umbrella. Some examples include the iShares Smart City Infrastructure UCITS ETF (ticker: CITY; expense ratio: 0.4%), iShares Global Clean Energy UCITS ETF (INRA; 0.65%), WisdomTree Recycling Decarbonisation UCITS ETF (WRCY; 0.45%), and the WisdomTree Renewable Energy UCITS ETF (WRNW; 0.45%).



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