The surge in investor enthusiasm for mutual funds and exchange-traded funds that aim to drive higher returns by focusing on sustainability criteria has taken a nosedive from the dizzying heights of 2021, with net inflows to ESG funds falling to their lowest levels in nearly three years.
For instance, in September investors added just $2-million more to responsible investment ETFs than they withdrew, the lowest net increase since May, 2019, and a blip for a category with nearly $10-billion in net assets, according to figures from the Investment Funds Institute of Canada.
Likewise, net inflows to ESG mutual funds dropped below $100-million twice since the summer, which outside of the first two months of the pandemic, hadn’t happened since the fall of 2019. Net assets for ESG mutual funds stand at more than $33-billion.
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The rut in which socially responsible mutual funds and ETFs find themselves comes amid greater regulatory scrutiny of the environmental, social and governance movement and an all-out attack on the ESG field by some business leaders and politicians, particularly in the United States.
The good news for the sector is that considering the recent bloodbath in other segments of the investment industry, ESG funds have held up reasonably well when it comes to investor demand. From September to November, net outflows from the mutual fund sector as a whole topped $24-billion as panicked investors fled the markets, making socially responsible mutual funds a rare bright spot.
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Jason Kirby