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Dec 06, 2023

Investors’ ESG skepticism continues as equity outflows hit record high

Seventh consecutive month of decline

Investors have once again shown skepticism about UK ESG equity funds, which suffered their seventh consecutive month of outflows in November, as investors withdrew more than half a billion – $672 mn in capital.

The latest decline in ESG outflows brings the year-end total to £3.66 bn, compared with outflows from non-ESG equity funds of £2.34 bn.

The biggest outflows came from ESG funds focused on North America, followed by UK-focused funds, according to data from Calastone, a global funds network. Its data shows that only ESG funds investing in emerging markets have continued to attract inflows this year, which the firm says could be part of a wider trend.

While UK ESG equity funds have continued to take a hit this year, they are not alone. ESG fixed-income funds have also seen consistent outflows for the past nine months, with £483 mn being withdrawn from the sector.

Edward Glyn, head of global markets at Calastone, says investors are intent on trying to ‘plot the likely path central banks will take with short-term interest rates and on how much risk to price into longer-term bonds’. November saw good news on inflation in the US, the UK and Europe, he explains, which investors increasingly hope will ‘stay the hand of policymakers deciding on the next move for rates’.

‘But it’s clear investors are very cautious,’ Gyln warns. ‘The Financial Conduct Authority (FCA) is now taking action to counter allegations of greenwashing in the ESG sector, but investors are way ahead of it – they have been voting with their feet for seven months now by selling down ESG funds.

‘The FCA’s action is likely to cast a further pall over the sector in the months ahead, however, and we will be monitoring the extent to which fund flows react.’