ESG Flows Drop for First Time Since Beginning of Pandemic
A Brief Summary
ESG flows fell for the first time since the start of the epidemic, according to Hargreaves Lansdown, the UK's largest investing platform, as a key EU regulator also said green assets could be poised for a correction.
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Due to market turmoil, investor flows to ESG funds fell by 115 per cent in January compared to the same month last year, with investors seeking possibilities in other areas such as financial equities.
“Before sounding the death knell for responsible investing it is important to consider the context,” said Emma Wall, head of investment analysis and research at Hargreaves Lansdown. “January 2021 was a record-breaking month for flows into responsible funds on the Hargreaves platform — so January 2022 always had a high bar to beat. Last month was also a choppy month for fund flows across all sectors, as investors sought to make sense of the higher-rate outlook.”
The drop in flows comes as the European Securities and Markets Authority (Esma) issued a warning to investors about the risk of significant market corrections this year, raising the possibility that green assets could enter a bubble, among other risks such as geopolitical tensions and rapid inflation.
“Concerns over possible green asset overvaluation lingered,” Esma’s report said, as ESG fund assets increased by 9% in the second half of 2021, and ESG bond markets grew by 19%.
“All investors should consider that the risk of market corrections remains acute,” said Verena Ross, chair of Esma, in a recent statement. “The markets remain highly volatile and Esma sees growing uncertainty for investors going forward.”