BlackRock dominated rival fund houses for sustainable fund flows in the UK last year in a sign the anti-ESG backlash in the US has not caught on across the pond.
Investors poured £17.3bn into BlackRock’s UK ESG funds in 2022, according to Financial News analysis of Morningstar Direct data.
That put BlackRock top of the sales table, followed by State Street and Legal & General Investment Management, which pulled in £1.2bn each over the 12-month period, which wound up being one of the worst for the wider asset management industry on record.
The $8.6tn funds giant was one of the few managers to see more client cash flow into its sustainable funds in the UK last year. Net inflows were up 50% on the year before when it raked in £11.8bn, figures from Morningstar show.
Including its iShares ETF business, BlackRock green strategies took in €43.6bn across Europe in 2022.
However, the picture was different in the US, where BlackRock and other fund groups felt the sting of an anti-ESG backlash drummed up by Republican lawmakers and a tough market backdrop.
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BlackRock and a handful of other major fund groups have been blacklisted by lawmakers in Texas, Florida, and most recently Kentucky, who have accused them of boycotting fossil fuel companies in pursuit of a “woke” green agenda.
The political grandstanding has taken its toll. Sustainable mutual funds and ETFs in the US took in just $3bn of client money last year, according to Morningstar, a 96% drop compared with the $71bn that flowed in during 2021.
Shaky performance among green funds also dented sentiment. ESG portfolios tend to have higher weightings in technology and other growth stocks, which were badly hit last year, and shun traditional energy firms, which raked in record profits.
Despite increasing its lobbying spend last year, BlackRock saw zero net flows into its US sustainable products in 2022, Bloomberg reported.
A person familiar with the matter confirmed the figure to FN, but said that BlackRock saw $65bn of positive flows into its sustainable funds globally in 2022.
In the UK overall, sustainable fund net flows dipped to £26.2bn in 2022 after hitting £38bn in 2021. However, demand for green products was more resilient than for non-sustainable strategies, which haemorrhaged £50bn last year.
“The anti-ESG backlash doesn’t feel like it’s a mainstream story here in the UK,” said Ryan Hughes, head of investment partnerships at AJ Bell.
Hughes thinks this is partly down to the fact the industry has become pre-occupied with trying to stay on top of competing ESG regulation coming out of Europe and the UK.
The European Commission is currently mulling tighter criteria for green funds under the Sustainable Finance Disclosure Regulation, while the Financial Conduct Authority is poised to launch its own ESG labelling regime.
“I think at the moment all that exists in the UK, and in wider Europe, is a whole host of confusion. And therefore, there is probably not the same level of political debate that’s gone on [in the US].”
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While demand for ESG funds in the UK didn’t slump as badly in the US, the fund groups that attracted the most client cash in 2021 — many of them active managers — saw a reversal of fortunes in 2022.
Liontrust, which saw £3.8bn flood into its sustainable funds in 2021, suffered £129m worth of redemptions, according to Morningstar. It had the second highest net outflows behind First Sentier Investors, which haemorrhaged £311m from its green strategies.
Royal London, which was second on the leaderboard behind BlackRock in 2021, only bagged an additional £255m from investors last year compared to the £3.9bn it brought in the year before.
Investors pumped £802m into Baillie Gifford’s ESG funds in 2022, £1bn less than the year before.
“Last year has shaken out a lot of the tourist money in ESG,” said Hughes. “People that were buying ESG because it was in vogue and performance looked good, not necessarily because they were standing forthright with their principles before their finances.”
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To contact the author of this story with feedback or news, email Kristen McGachey
