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 rise.
Analysts at BofA, the head of US sustainability research, attribute the ESG boom from 2016 to 2021 to three factors: global regulatory pressure, especially in Europe; growing investor demand, especially from millennials; and growing corporate ESG commitments.
However, BofA is seeing a decline since the 2021 peak. Analysts blame regulation, accusations of greenwashing, energy security concerns and U.S. political resistance.
US ESG fund assets fell from $17 trillion in 2020 to $8 trillion in 2022, with outflows continuing into 2024.
Despite the slowdown, Bofa believes ESG remains important. US regulations require some companies to adopt ESG policies, and European regulations continue to influence US firms seeking European capital.
BofA also sees a fragmented ESG data market, dominated by MSCI, Sustainalytics and ISS, but with many niche players.