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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

3 sustainable funds that are good long-term bets even as investors pull back

3 ESG funds that are worth long-term looks even as investors pull back

Chandrima Sanyal

Investors are increasingly withdrawing from ESG-themed investment vehicles, with worldwide outflows from sustainable ETFs and mutual funds reaching a record $8.6 billion in the first quarter of this year.

Though America has been the initial epicenter of this ESG reversal, tremors are now being felt in Europe and Asia, casting doubt about the short-term sustainability of ESG strategies, even as under-the-radar long-term opportunities unfold.

According to the Financial Times, citing Morningstar figures, U.S. investors withdrew from sustainable funds for a tenth consecutive quarter. But in a dramatic change, European investors, long ESG’s most devoted followers, were net sellers for the first time on record, withdrawing $1.2 billion. Asia also experienced a decline in sustainable fund exposure.

Despite the pullback, some ESG-themed ETFs, now available at discounted prices, may offer attractive long-term investment opportunities for investors willing to ignore the prevailing sentiment. Below are three ETFs, though affected by recent headwinds, that are worth consideration for the future:

  • iShares MSCI USA ESG Select ETF SUSA :  SUSA, which monitors U.S. companies with good ESG practice compared with industry peers, has experienced investor withdrawals as skepticism about ESG principles expands across the United States. The fund has witnessed a price erosion of almost 7% year-to-date. Still, SUSA’s emphasis on high-quality, sustainable business practice companies is a core strength, especially as corporate governance and environmental risks remain real risks to long-term profits.
  • iShares Global Clean Energy ETF ICLN : ICLN, one of the leaders in the clean energy transition segment, has caught up in the general ESG retreat. However, as governments worldwide double down on decarbonization initiatives, clean energy remains an inevitable structural growth story. Recent price volatility may be unsettling, but for long-term investors, the sector’s growth trajectory, driven by global policy mandates and technological innovation, remains intact. The fund has actually gained almost 3% this year so far, seemingly defying the pullout.
  • SPDR S&P 500 ESG ETF EFIV : This fund provides exposure to an ESG-screened variant of the S&P 500, which shuns firms that engage in contentious businesses but remains sector-neutral. The fund has lost 8% of its value this year thus far. The current underperformance of the fund compared to its traditional peers is a reflection of the ESG chill in sentiment. Yet, EFIV’s strict discipline of offsetting ESG considerations with standard financials makes it well-placed to recover if regulatory certainty regarding ESG disclosures helps revive investor faith.

The wave of recent withdrawals, dramatic as it is, is perhaps in the end more a recalibration than a requiem for ESG investing. While Europe is tightening greenwashing rules and arguing about the legitimacy of adding defense stocks to sustainable portfolios, the ESG scene is certainly changing, sometimes tumultuously, usually politically, but eventually tending toward increased transparency and realism.

To investors who can filter out the political noise and look to underlying trends, some ESG ETFs bruised by the latest backlash may bring not only virtue, but value.

Read more: Mission-driven investing with Green Century

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