European investors were the first to begin turning away from ESG funds, according to data from across the Calastone fund network.
The company made the assertion in its latest Global Fund Flows Report, suggesting the “backlash” against ESG products began on the continent. “European investors began selling out of ESG funds in January 2022 and did so consistently almost all of that year,” it said. “Part of this simply reflected bearishness on equities across the board, but selling of ESG holdings was disproportionately high and illustrates how the backlash was setting in.
“In 2023, they were net sellers in every month from May to the end of the year, withdrawing a net $3.7bn (€3.4bn). Singaporeans were close behind. They were also net sellers in 2022, even as they continued to add to non-ESG funds. In 2023, outflows in Singapore more than doubled to $712m, and more than offset inflows to traditional equity fund options.”
The switch away from ESG, Calastone said, had now expanded across its network, with UK investors selling down $1.2bn of their holdings in 2023 – almost double their redemptions from non-ESG equity funds. This was followed by the Australians, with $292m of redemptions from ESG funds, and $425m redemptions from non-ESG.
In both cases, Calastone said, the far smaller size of ESG funds by assets under management compared to non-ESG funds indicated a more determined focus on selling the former. Hong Kong and Taiwanese investors joined their peers around the world, pulling out $370m and $552m respectively from ESG equities.
Equity bears
Calastone also noted UK and European investors’ bearishness on equities in 2023, adding: “If we look across our different territories, investors in the UK and Europe have been the most negative – though the outflows were significantly smaller year-on-year. We saw net outflows from equity funds on our network of $1.8bn in the UK (one fifth of the level the year before) and of $1.6bn in Europe, (one sixth of the level in 2022).”
The company pointed out its business was not the same size in each place, however, so its Fund Flow Index enabled a more useful comparison. “The index compares net fund flows to total volumes and showed a very similar 49.7 and 49.4 respectively for 2023 – just below the neutral 50 mark where buy and sell orders are of equal value,” it explained. “European investors were far more negative in 2022, so sentiment here has improved more than in the UK.”
