ESG Investing Didn't Soar In 2022 But Is Here To Stay: CNN
ESG funds — investments that evaluate companies using environmental, social and governance factors — just survived a tumultuous 2022.
Photo Insert: On a global scale, ESG funds also attracted positive investment flows even as money was pulled from broader funds.
They also managed to perform in line with the general market while doing so, and attract new money — a good sign for the future of responsible investing, Nicole Goodkind reported for CNN.
Russia's war in Ukraine forced traders to reconsider investing in certain energy and weapons stocks. That increased scrutiny also played into political differences around ESG investing and opened the door to vocal critics.
Responsible investing funds also came up against mighty economic headwinds. These funds' outsized investments in tech stocks and lack of energy stocks (which was the only positive sector this past year), led to noticeable losses for ESG funds in general last year.
Energy was the best-performing market sector in 2022, returning some 66% while the broader tech sector lost 28%.
Still, sustainable investing generated returns similar to the broader market. The broad Morningstar US Sustainability Index fell 18.9% in 2022; the S&P 500 fell 19.4%.
On a global scale, ESG funds also attracted positive investment flows even as money was pulled from broader funds, according to Refinitiv Lipper data provided exclusively to CNN’s Before the Bell.
Hedge funds and other institutional investors sold stocks and held cash instead. Goldman Sachs reports that funds increased their cash holdings to around 2.5% of their total portfolios last fall.
That's a full percentage point higher than where it was at the end of last year and the highest level since the beginning of 2020. But ESG inflows remained strong, especially abroad.
ESG accounted for 65% of all flows into European ETFs in 2022, according to Morningstar data.