Climate-focused funds have seen sales plunge 75% in 2 years amid high rates and anti-'woke' rhetoric
- Climate-focused mutual funds saw a 75% decrease in inflows since 2021, Financial Times reported.
- Sales dropped from $151 billion in 2021 to $37.8 billion in 2023, according to Morningstar data.
Climate-focused mutual funds have suffered a one-two punch of anti-woke messaging and high interest rates — and it's knocked new investment down by a whopping 75% since 2021.
New money funneled into climate-focused mutual funds dropped to $37.8 billion in 2023, down from $151 in 2021, according to Morningstar data cited by The Financial Times. That marks the worst year of net inflows since 2019.
The crusade against ESG investing has siphoned money out of green investments. A number of state legislatures proposed anti-ESG laws in 2023 as critics vilified the investment strategy as biased against industries like oil and gas. ESG mutual funds specifically saw a $2.5 billion outflow, globally.
The anti-ESG crusades were also paired with steadily rising interest rates that hurt green-focused firms. Clean energy companies were pummeled by the soaring costs of debt, sending stocks in the space tumbling to the bottom of the market. The sector is still trying to shake off the doldrums, with funds that track the market like the iShares Clean Energy ETF down 10% this month alone after dropping almost 20% last year.
High interest rates have also drawn more money into higher-yielding cash products. For example, a record $6 trillion in cash is currently parked in money market funds, spurred by interest rates that topped 5% last year.
Also stirring the rout is a jittery energy market as the ongoing war in Ukraine and tumult in the Red Sea disrupt global trade flows. The geopolitical volatility has sent oil stocks higher, pouring cold water on demand for climate assets.
The woes of ESG funds come at a time when climate financing is needed more than ever. Last year was the hottest year experienced on record, with a stream of climate disasters from the Maui wildfire to an abnormally strong Atlantic hurricane season. According to a report by the Climate Policy Initiative think tank, climate financing needs to reach an annual $9 trillion by 2030.