From CNBC: 2025-03-31 09:00:00

Investors have withdrawn money from ESG funds amid political backlash and high interest rates, but analysts believe in a favorable long-term outlook. President Trump’s agenda hasn’t halted ESG investing, with demand expected to persist despite political pressure.

ESG funds, also known as socially responsible investing, saw nearly $20 billion pulled out in 2024, following $13 billion in 2023. Despite consecutive outflows, ESG fund assets grew slightly to $344 billion due to market appreciation. Younger investors show high interest in sustainable investing, with 84% intrigued, according to a Morgan Stanley survey.

Political headwinds, like Trump’s anti-ESG policies, pose challenges for ESG investing. SEC stopped defending a climate disclosure rule, raising uncertainty about the future of ESG initiatives. The number of ESG funds decreased in 2024, reflecting the impact of the political environment on the investment landscape.

Non-political challenges, such as high interest rates and underperformance, also hinder ESG funds. Sectors like clean energy are negatively affected by high borrowing costs. ESG portfolios have lagged, with some underperforming due to the booming oil and gas sector after the Russia-Ukraine conflict in 2022.

ESG investing focuses on long-term risk reduction and improving risk-adjusted returns, not philanthropy. Companies prioritizing ESG goals are more likely to achieve long-term growth potential. Despite short-term challenges, ESG investing aims to provide sustainable returns over time by aligning investments with environmental, social, and governance principles.

Read more: Trump’s backlash isn’t ‘game over’ for ESG investing