BofA: ESG investing has lost its sheen

Bank of America analysts said in a note this week that Environmental, Social, and Governance (ESG) investing’s popularity has waned after a stellar run.

Analysts at BofA’s Head of US Sustainability Research attribute the 2016-2021 ESG boom to three factors: a global regulatory push, particularly in Europe; rising investor demand, especially from millennials; and a surge in corporate ESG commitments.

However, BofA highlights a decline since the 2021 peak. Analysts blame regulations, accusations of greenwashing, energy security concerns, and US political resistance.

US ESG fund assets have shrunk from $17 trillion in 2020 to $8 trillion in 2022, with outflows continuing in 2024.

Despite the slowdown, Bofa believes ESG remains important. US regulations require some companies to adopt ESG policies, and European regulations still influence US firms seeking European capital.

BofA also sees a fragmented ESG data market with MSCI, Sustainalytics, and ISS dominating, but many niche players exist.