A clarifying time for sustainable investing

Sustainable investing is languishing in the US – at least as a mainstream concept – as the biggest asset managers cut products and show less support for ESG in proxy votes.Money has been pouring out the category, too. Last year, about $19.6 billion left US open-end mutual funds and ETFs with sustainable strategies, data from a recent Morningstar report show.Amid that, fund shops closed or repurposed 55 funds, up from 45 in 2023. Fund launches plummeted compared with those of recent years, with just 10 products appearing on the scene in 2024, according to Morningstar.And facing pressure from politicians at the state and federal level, the biggest asset managers showed far less support for shareholder resolutions with environmental, social, or governance aims than they did in the past. All those factors put the US at odds with other countries across Europe and Asia, where sustainability has continued to attract assets and attention.

so far, appear less willing to back off from ESG

That might make it sound like it’s a difficult time to guide clients on sustainable investing – but advisors say that’s not necessarily the case. Although big firms like BlackRock and Vanguard have distanced themselves from the category, there are plenty of others that, so far, appear less willing to back off from ESG.“I view it as a natural market correction – one that clarifies which firms are truly committed to ESG and which were just riding the trend. For advisors, this means we have to be more selective, focusing on funds and strategies with strong, transparent sustainability mandates rather than those that simply checked the ESG box for marketing purposes,” said Daniel Milks, cofounder of Woodmark Advisors, in an email.The politicization of ESG has frustrated clients, though the demand hasn’t subsided, he said.“Because of that, some are looking beyond ESG to alternative approaches like biblically responsible investing (BRI) or broader ethical investing, which often provide clearer alignment with personal values without the baggage that ESG has accumulated,” he said.