Data from RBC Capital Markets show that year-to-date, companies with better ESG risk scores have outperformed those with worse ESG risk scores within both the S&P 500 and S&P Europe 350 indexes as of June 9.
“Flows have not been as bad as the term ‘reckoning’ would imply,” Sara Mahaffy, ESG strategist for RBC Capital management, said by phone. “They have eased back from highs, but you’re still seeing inflows.”
RBC also found that while sustainable fund flows have fallen from their peaks, inflows still continue and, in fact, outperform their traditional counterparts. Some of that could be due to weaker performance and investor preference of value funds at the start of the year, Mahaffy said. “We also think some of the trend is reflecting a general easing that we’ve seen in equity fund flows,” she added.
Many fund managers welcome proposed SEC regulations that would prevent money managers from misleading investors on ESG investments.
“This could allow investors to make more apples-to-apples comparisons, which is pretty much impossible now,” said Amrita Nandakumar, president at Vident Investment Advisory.
More transparency could also help investors understand what is and isn’t ESG. The Tesla incident was “the perfect example for why it’s complicated,” Jake Jolly, senior investment strategist at BNY Mellon, said at Bloomberg’s New York office.
“It’s not, ‘oh, just take everybody like deals with crude oil, throw them out and then keep everybody that’s electric,’” he added. “It’s complicated.”
In fact, RBC found that ESG money managers have grown more accepting of fossil-fuel names. The firm found that inclusion of fossil fuel and energy companies in US sustainable funds climbed 0.6% and 0.5% from the fourth quarter of 2021, respectively.
Kyle Harrison, head of sustainability research at BloombergNEF, said the energy-centric additions to sustainable funds reflect a growing appetite for ESG improvers. “The thought process is that an oil major that is working towards a climate goal and changing its business model will make a bigger decarbonization impact than a tech company that is already sustainable,” he said.
And greater investor education has finally helped point buyers toward opportunities beyond their old favorites, wind and solar. “One area where the inflows have been picking up this year have been for the sustainable agriculture and food-focused funds,” RBC’s Mahaffy said.
This article was provided by Bloomberg News.