Star performer: The BlackRock headquarters in New York. The firm has been at the top of ESG fund-flow league tables every quarter for at least the past five years. — Bloomberg
NEW YORK: For the first time in at least 3½ years, BlackRock Inc has seen clients withdraw more cash from its environmental, social and governance (ESG) funds in Europe than they allocated amid an apparent retreat from passive strategies, according to a fresh analysis by Morningstar Direct.
Investors with the world’s largest asset manager pulled US$2.2bil, net, from European-domiciled sustainable open-ended and exchange-traded funds, according to third-quarter data compiled for Bloomberg by Morningstar.
The market researcher, whose calculations are based on its own definition of sustainable, provided data going back 14 quarters, when Europe enforced its investing rulebook for ESG disclosures.
“This is surprising given that BlackRock has been at the top of ESG fund-flow league tables every quarter for at least the past five years,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics.
“It’s even more surprising that the outflows came from its passive fund range, which has always proven popular among investors.”
A spokesperson for BlackRock said that globally, the asset manager’s sustainable fund flows for the third quarter were positive. In fact, when including institutional mandates, BlackRock saw inflows in Europe of more than US$25bil, so the momentum “is strong,” the spokesperson said.
The Morningstar data, which are limited to mutual funds bought by retail and institutional investors, also show that flows into Europe’s index-tracking ESG funds fell to a record low of US$10bil at the end of September.
After years of pushback against ESG in the United States – with BlackRock chief executive officer Larry Fink famously bemoaning the label’s weaponisation – the Morningstar data suggest the investing strategy is also bumping up against resistance in Europe.
The region, which sits on more than 80% of the world’s ESG fund assets, saw net fund inflows across asset managers drop more than 7% last quarter, Morningstar estimated.
Investors are trying to navigate a cocktail of market-lagging returns combined with a continually evolving regulatory environment.
That includes product-naming rules being enforced by the European Securities and Markets Authority, which Morningstar says could force thousands of ESG funds to either dump assets or find a new name.
BlackRock funds affected by outflows last quarter include clean-energy strategies, according to Bioy. BlackRock’s ESG-enhanced series of exchange-traded funds, which use the EU’s climate-transition benchmark were also hit, she said.
“Whether or not this is the beginning of a new era for the firm marked by outflows, or more volatile flows in this corner of the market, remains to be seen,” Bioy said. “It might be too early to say anything definitive at this point.
“Across the wider fund industry, there are still flows into products tracking climate-transition benchmarks although these have been smaller this year than in the previous three years,” Bioy said. A Bloomberg analysis of ESG equity funds found they’re continuing to underperform the wider market. — Bloomberg
