(Bloomberg) — BlackRock Inc. has been quietly expanding its dominance in ESG investing despite fierce attacks from Republicans, bleak returns and declining client interest in the United States.
The world’s largest asset manager has reported net ESG inflows each quarter for the past two years, during one of the toughest periods for environmental, social and governance investing in two decades.
According to data provided by BlackRock, from the beginning of 2022 to the end of last year, the total number of ESG-related assets managed by BlackRock increased by 53%. morning star direct. Over the same period, the broader ESG fund market grew by only about 8%. The fund manager currently manages approximately $320 billion in ESG funds, more than any other investment firm in Europe, the United States or globally.
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BlackRock declined to comment on the figures, which are based on Morningstar’s own assessment of sustainability metrics and exclude money markets, feeder funds and funds of funds.According to its website, BlackRock manages $665 billion through its sustainable investing platform and integrates ESG data it deems financially material into its company-wide investment process.
“BlackRock has been the largest contributor to ESG fund inflows over the past five years, including the past few years,” said Hortense Bioy, global director of sustainability research at Morningstar. “Despite the strong opposition to ESG in the United States.”
The backlash is growing as Republicans try to portray ESG as woke, anti-capitalist, and even anti-American. BlackRock has often found itself on the receiving end of ESG-related outrage, prompting CEO Larry Fink to announce the label as well.weaponized” to use. This comes after he warned that the debate around ESG has become “ugly” and “personal”.
“We expect the backlash against ESG in the United States to continue until the election,” Bioy said. “Maybe more, depending on the outcome of the election.”
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There are also some well-known figures in the financial industry who have fiercely criticized ESG.in a recent posts On X, billionaire investor Bill Ackman accuses the “ESG movement” of “causing huge harm.” He cited “nuclear and carbon-based energy and the divestment of our defense companies” as examples, which, according to Ackman, undermined U.S. energy independence, weakened defense capabilities and even increased production by shifting production to other markets. Damage to the environment.
Complicating the narrative of ESG proponents is that the macroeconomic forces that have prevailed since the end of the pandemic, including high interest rates, have proven to be a toxic cocktail for many green stocks that have traditionally been part of ESG portfolios. Last year, the S&P Global Clean Energy Index fell 20%, while the S&P 500 rose 26%, including reinvested dividends.
But ESG is about more than just wind and solar. The three BlackRock funds that saw the largest asset growth last year (tickers: ACSEUX3@LN, EEDS@LN and ACWEIXG@LN) all count Microsoft Corp. and Apple Inc. as their top two holdings, according to Morningstar.
In the U.S., Morningstar estimated in September that the most popular ESG strategy is climate transition, which should invest money to make less green assets greener. The climate transition fund attracting the largest inflows is BlackRock’s iShares Climate Conscious & Transition MSCI USA ETF (USCL@US), whose top holdings are Nvidia, Amazon.com and Microsoft ).
Meanwhile, the broader ESG fund market took a heavy hit in the final three months of 2023, Net customer outflow for first time in history. The retreat was led by the United States, with redemptions too large to be offset by European inflows.
The global fund market lost $2.5 billion in ESG client cash last quarter, while BlackRock saw net inflows of $4.7 billion, driven by its European operations and index-tracking strategies, according to Morningstar. Morningstar said BlackRock saw $5.6 billion in new inflows into passive ESG strategies, exceeding net outflows of about $900 million from active strategies.
For global ESG, index tracking investing is beginning to replace active management. Even in Europe, by far the largest market for ESG investing, the trend is striking. Passive ESG funds brought in $21.3 billion last quarter, while clients of actively managed ESG funds withdrew nearly $18 billion, according to Morningstar.
This development is all the more noteworthy because ESG has long been considered particularly suitable for active management, as an additional layer of analysis is seen to be needed to screen for factors such as climate and biodiversity risks.
Bioy said the latest flow data showed a “disappointing reality” that managers pursuing active ESG strategies had “failed” to demonstrate to clients that they should be entrusted with their money, despite being in a “market position” A corner where they can more easily prove” their worth. “
Currently, active ESG strategies continue to outperform passive strategies in Europe and the United States. But the latest traffic data suggests the dynamics may be changing. Morningstar noted that 85% of BlackRock’s ESG fund products currently use passive strategies.At the same time, Bioy pointed out that BlackRock’s growth in ESG is closely related to Number of ESG resolutions supported drops.
In Europe, competitors are taking notice. Amundi SA, Europe’s largest investment management company, ranks third in the world in terms of ESG. The target is By 2025, 40% of its index-tracking ETFs will be ESG products. At the end of last year, the proportion was 33%.
Ultimately, Morningstar said, the “disappointing” results produced by active ESG managers “forced investors to turn to passive, low-cost” strategies.
