[ad_1]
(Bloomberg) — Despite a barrage of Republican attacks, lackluster earnings and declining customer interest in the U.S., BlackRock Inc. is quietly expanding its dominance in ESG investing.
Most Read Articles on Bloomberg
The world’s largest asset manager has recorded net ESG inflows every quarter for the past two years, marking one of the toughest periods in environmental, social and governance investing’s 20-year history. ing.
Overall, BlackRock’s ESG-related assets under management rose 53% from the beginning of 2022 to the end of last year, according to data provided by Morningstar Direct. Over the same period, his broader ESG fund market grew by only about 8%. The asset manager currently oversees approximately $320 billion in ESG funds, more than any other investment firm in Europe, the United States, or anywhere in the world.
Read more: Why Texas bans banks over ESG policies: QuickTake
BlackRock declined to comment on the numbers, which are based on Morningstar’s own assessment of sustainability metrics and do not include money markets, feeders or funds of funds. According to its website, BlackRock manages $665 billion through its Sustainable Investing Platform and integrates what it considers financially material ESG data into firm-wide investment processes.
“BlackRock has been the largest contributor to ESG fund flows over the past five years, including the last several years,” said Hortense Bioy, global director of sustainability research at Morningstar. And that’s “despite the ESG backlash in the US.”
That backlash has become increasingly aggressive as Republicans seek to characterize ESG as woke, anti-capitalist, and even anti-American. BlackRock has often been the target of ESG-related ire, with chief executive Larry Fink declaring the label too “weaponized” for use. This came after he warned that the debate around ESG had become “ugly” and “personal”.
“We expect the ESG backlash in the US to continue into the election,” Bioy said. “And maybe even more depending on the outcome of the election.”
Read more: How Trump’s candidacy will test the U.S. Constitution: QuickTake
Even within the financial industry, there are voices that strongly criticize ESG. Billionaire investor Bill Ackman accused the “ESG movement” of “causing tremendous damage” in his recent post on X. According to Ackman, examples of harming the environment by undermining America’s energy independence, weakening its defense capabilities, and shifting production to other markets include “nuclear energy and carbon-based energy; “Sale to Japan’s defense companies.”
Complicating the story for ESG advocates, macroeconomic forces, including the high interest rates that have prevailed since the end of the pandemic, are a toxic cocktail for many of the green stocks that have traditionally filled ESG portfolios. It turns out that. Last year, the S&P Global Clean Energy Index fell 20%, while the S&P 500 index rose 26%, including reinvested dividends.
But ESG is about more than just wind and solar. According to Morningstar, the three BlackRock funds (tickers: ACSEUX3@LN, EEDS@LN, ACWEIXG@LN) that saw the largest increases in assets last year all count Microsoft and Apple as their two largest holdings. There is.
In the United States, Morningstar estimated in September that the most popular ESG strategy is one known as climate change, which puts money into making less green assets more environmentally friendly. The climate fund with the biggest inflows was BlackRock’s iShares Climate Conscious & Transition MSCI USA ETF (USCL@US), whose top holdings include Nvidia, Amazon.com, and Microsoft.
Meanwhile, the broader ESG fund market was hit hard by the first-ever net customer exodus in the last three months of 2023. The withdrawal was led by the United States, whose redemptions were too large to offset the inflows from Europe.
While the global fund market lost $2.5 billion in ESG client cash last quarter, BlackRock posted net inflows of $4.7 billion, led by its European operations and index-linked strategies, according to Morningstar. According to Morningstar, BlackRock saw $5.6 billion in new capital flow into passive ESG strategies, more than making up for about $900 million in outflows from active strategies.
Index-linked investing is starting to replace active management when it comes to ESG globally. The trend was also evident in Europe, by far the largest market for ESG investing. Passively managed ESG funds generated $21.3 billion in revenue last quarter, while clients of actively managed ESG funds withdrew about $18 billion, according to Morningstar.
This development is even more noteworthy as ESG has always been considered uniquely suited to active management, as additional layers of analysis are considered necessary to screen for things like climate and biodiversity risks. To do.
Bioy said the latest flow statistics show that managers pursuing proactive ESG strategies “are in a corner of the market where it’s easier for customers to prove they should put their money there. “This points to the “unfortunate reality” that they have not been able to prove this to their customers.” their value. ”
So far, active ESG strategies continue to outperform passive ones in both Europe and the US. However, the latest flow data suggests that dynamics may be changing. Morningstar notes that 85% of BlackRock’s ESG fund products are now passive strategies. Meanwhile, Baioi points out that BlackRock’s growth in the ESG space has coincided with a decline in the number of ESG solutions supported by the company.
In Europe, competitors are taking notice. Amundi SA, Europe’s largest investment management company and the third largest in the world in ESG, aims to have 40% of its index-tracking ETFs be ESG products by 2025. As of the end of last year, the ratio was 33%.
Ultimately, the “disappointing” results produced by active ESG managers forced investors to shift to “passive, low-cost” strategies, Morningstar reported.
–With assistance from Sheryl Tian Tong Lee.
(Adds Ackman comment in 8th paragraph.)
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP
[ad_2]
Source link
