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Because investors are moving away from sustainable funds

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Funds that take into account environmental and social aspects as well as company management raised about 482 billion euros net last year.

(Photo: dpa)

Frankfurt Long-booming funds for sustainable investments are being hit. On the European fund market, investors withdrew money from these products for the first time between February and April. Based on Morningstar data, the Investor.de online platform is worth around € 18 billion.

“Presumably the news about greenwashing, lower investment returns and of course the generally negative stock market situation play a role,” says fund expert Envestor Ali Masarwah. A trend has been reversed with sales, because in the last calendar year these so-called ESG products, taking into account environmental and social aspects as well as aspects of sustainable business management, had raised about 482 billion euros net.

Sustainable Funds: Article 8 offers have hit hard

The statistics are based on the EU disclosure regulation, which has been in effect since March last year. According to this, all product suppliers must divide their funds into three groups: those with no particular claim to sustainability, those with a corresponding approach and those with a special claim in this field. The last two groups, important here, are referred to as funds referred to in Article 8 and those referred to in Article 9 – in financial jargon, reference is often made to the “light green” and “dark green” offers.

In the months from February to April, the Art. 8 offers were particularly affected, with outflows of approximately 33 billion euros. Although investments in Article 9 products have decreased, around five billion euros remained positive.

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Fund expert sees DWS scandal as a selling point

However, the movements are put into perspective against the backdrop of capital stocks: the products declared sustainable amount to around 4.5 trillion euros, the most ambitious offers according to Article 9 contained therein to 0.7 trillion euros, all other funds at € 7.1 trillion.

Expert Masarwah sees the bad news, particularly about DWS with allegations of an exaggerated sustainability approach, as a possible reason for the changed ESG interest, which the supplier denies.

>> Read also: These scandals weigh on DWS

“It would be plausible to assume that in this sentimental climate, investors will switch from less ambitious ESG funds to more ambitious ones,” Masarwah said. However, the expert does not see a general and long-term change in mood, but rather a normalization after the very strong inflows of ESG products in the last year. He describes it as “breathing after exaggeration”. As for the outlook, he says: “The general stock market situation and the question of whether central banks can curb inflation without causing the economy to collapse will initially eclipse all other arguments.”

Sustainable Funds: Lower returns are a burden

Another reason for the recent cash withdrawals could also be the deterioration in investment results after the stock market reversal around the end of the year. This is already demonstrated by the leading market benchmarks and ETFs based on them, the Exchange Traded Index Funds.

In recent years, for example, the Blackrock ETF on the MSCI global equity index with a Socially Responsible Investment (SRI) orientation and therefore an ambitious sustainability has always achieved returns of a few percentage points higher than the conventional index.

The sustainability fund loses more than the conventional index

Different in the current year until April: the SRI ETF lost 11%, the conventional index only 8%. The reasons are many: contrary to the past, many growing companies considered sustainable are in crisis, while raw materials, long neglected as climate pollutants, are in demand thanks to ever higher prices.

Actively managed funds show the same picture. According to Scope Analysis, internationally invested equity products offered as sustainable lost nearly 12% in the first five months of this year. All strategies without special ESG reporting, on the other hand, managed to get away with a loss of nearly 8%.

Moreover: The green paint job on tech companies also has its downsides for investors

First published: 06/19/22, 09:55.

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