There is a huge outflow of ESG**, what is going on?
Written by |oilprice
Produced by |Zero Carbon Knowledge Bureau.
A few years ago, environmental, social and governance-focused investments were all the rage. The reputational impulse to be environmentally or socially responsible is so strong that ESG investing** has seen an influx of new assets.
Now, ESG is shutting down or removing the "sustainable" section from its name. Their performance left much to be desired, and investors began to flee.
Reuters reported this week that net new inflows classified as sustainable in the first 11 months of this year were $68 billion, compared with $158 billion last year, according to LSEG Lipper, a performance data provider owned by Reuters' parent company.
That's a considerable decline, but the numbers for 2023 look worse compared to 2021: data from LSEG Lipper shows that in 2021, net new money for ESG** totalled $558 billion.
We can't help but ask, what the hell is going on?
First of all, due to the impact of the new crown epidemic, oil prices in 2020** and continued to be low in 2021, resulting inMany investors flee the industry and seek to diversify their investments。Second, greenwashing is beginning to increase on a global scale. Third, the sustainable transition that relies on these funds has stalled amid soaring cost inflation.
In April 2020, the United States*** fell below $0 for the first time in history. Although only a short-term effect, this highlights the impact of the pandemic on global energy markets and, perhaps more importantly, on energy demand.
Investors are exiting oil and gas in search of new opportunities. ESG is actively promoted as both profitable and ethical – a win-win situation that many people can't resist, not least because of their strong support for a sustainable future for these propaganda.
But the negative impact of the pandemic will not last forever. Energy demand quickly recovered and rose, as did oil prices. Inflation has pushed up the cost of energy in all its forms.
ESG** begins to close. According to Bloomberg,In this year alone, more than two dozen of these ** have been shut down. Others are seeing an exodus of investors due to a lack of clear ESG goals. The name "sustainable" is no longer enough. Some ** are removing the "sustainable" label from their name altogether because it no longer appeals to investors.
Regulators are tightening the rules to promote sustainability。The U.S. Exchange Commission launched an investigation into Goldman Sachs' ESG last year. The state of Tennessee is currently suing BlackRock for its ESG strategy, which the state says violates consumer protections by inflating "the extent to which ESG factors affect a company's financial performance and prospects."
The lawsuit is another example of the problem with ESG investing: a backlash from Republican states against the trend, with some states such as Texas threatening to withdraw their own funds from asset managersAccording to them, these asset managers discriminate against the oil and gas industry.
At the same time, to make matters worse for ESG managers, oil prices are sharply reduced. 2022 has resulted in record profits for major oil companies. Investors who were previously eager to make money by being responsible for environmental, social and governance are back in the land of emissions. Regulators have stepped up their crackdown on greenwashing.
Despite the change in investor sentiment, ESG did outperform. But it's not because sustainable businesses make a lot of money. This is becauseBig tech companies make a lot of money, and ESG** tends to have significant exposure to big tech companies.
Big tech giants are indeed the biggest proponents of sustainability, with their wind and solar power purchase agreements and their carbon offsets both huge financial flows. This year, these projects are no longer flattered because:Carbon offset projects largely do not offset anything.
All in all, investors' behaviour and attitudes towards ESG this year reflect the deepening distress of the relevant sectors. The cost of wind power projects has soared so much that some have become unviable. PV is doing better, but demand is also weakening, especially as costs rise.
EV manufacturers have also had a bad year, with manufacturing plans increasing as demand has not always met expectations despite efforts to incentivize demand through subsidies. Reports about electric vehicles** have multiplied, as have complaints about car performance.
This week, Reuters unveiled a detailed investigation into Tesla, revealing tens of thousands of serious mechanical failures that the company knew for years but blamed on drivers. Deutsche Bank's ESG chief investment officer said oil and gas** should be added to ESG because investors want to invest in oil and gas.
Demand for ESG investing is likely to remain as strong next year as it was two years ago. Regulators are still keeping a close eye on this segment and are ready to start tougher regulation at any time. Oil & Gas** climbed again. **Need to work harder to keep investors green.