Bank of America analysts said in a note this week that the popularity of environmental, social and governance (ESG) investing has waned after a stellar run.
Analysts at Bank of America Head of US Sustainability Research attribute the 2016-2021 ESG boom to three factors: a global regulatory push, especially in Europe; High demand from investors, especially millennials; and an increase in corporate environmental, social and governance commitments.
However, Bank of America highlights the decline since its peak in 2021. Analysts blame regulation, accusations of greenwashing, concerns about energy security, and US political resistance.
The assets of US ESG funds shrank from $17 trillion in 2020 to $8 trillion in 2022, with outflows continuing in 2024.
Despite the slowdown, Bova Bank believes ESG standards remain important. US regulations require some companies to adopt environmental, social and corporate policies, and European regulations continue to affect US companies seeking European capital.
Bank of America also sees a fragmented market for ESG data with MSCI, Sustainalytics and ISS dominating, but there are several niche players.