Market turbulence sees retail shift away from ESG in January, says Hargreaves Lansdown

Feb 15, 2022
Choppy month not indicative of longer-term shift away from ESG, says private investor firm

ESG fund flows dipped for the first time since March 2020 last month, as investors sought to ‘take gains and buy into other sectors’ amid market turbulence, according to retail investment firm Hargreaves Lansdown (HL).

The UK company says net flows into ESG funds were down 115 percent in January 2022 compared with January a year earlier. But January 2021 was always going to be a hard month to beat, says Emma Wall, head of investment analysis and research at HL, adding that it is important to consider the context. ‘January 2021 was a record-breaking month for flows into responsible funds on the HL platform,’ she explains in a statement accompanying the findings. ‘So January 2022 always had a high bar to beat.’

Emma Wall, Hargreaves Lansdown
Emma Wall, Hargreaves Lansdown

She also points out that the considerable market volatility had resulted in movements around a range of themes. ‘Last month was also a choppy month for fund flows across all sectors, as investors sought to make sense of the higher-rate outlook,’ says Wall. ‘The increased popularity of responsible investment funds will be a structural shift, rather than a faddy trend and, while there may be months where flows slow, assets under management are likely to grow steadily over time.’

January’s ‘significant market volatility’ cooled the appeal of growth stocks, explains Wall. ‘The Nasdaq index of US tech stocks recorded its worst month since the pandemic slump in March 2020, as investors took gains and instead sought out stocks such as financials, which tend to benefit from higher interest rates.,’ she says. ‘ESG funds were caught up in the style rotation as the appeal of growth-oriented names waned.’

HL has more than 1.67 mn clients with around £138 bn ($187 bn) invested through its platform as of September 30, 2021.

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