Over the past week there has been a lot of commotion about how European ESG funds have just seen their first ever quarter of net outflows in Europe. 

Some are taking this figure to argue that we are well past 'Peak ESG', which they date as the period 2020-22 when the creation and investment into ESG investment strategies boomed.

But very few people have properly put this quarterly decline into context:

🔬 The $1.2bn outflow represents only 0.04% of the money invested in European ESG funds.

🌳 The $2.7trn value of European sustainable funds may well shrink, but no investment category that has reached that level of AUM disappears. Sustainable funds are here to stay.

🦅 While investment directors could be promoting ESG funds less, attributing this entirely to the general White House pushback is a bit crude. 

European sustainable funds tend to be very short oil and gas companies, and long renewable energy generators (which are very interest-rate sensitive). The US Administration wants to deregulate and promote the oil and gas industry and impose wide-ranging tariffs that are likely to push up inflation, and therefore increase interest rates. 

It's perfectly rational that some investors want to get out of the way of those trends.

📈 Institutional investor interest in ESG does not typically manifest in a demand for sustainability-focused or ESG-labelled funds. It manifests in a demand to see material ESG risk assessment integrated into general portfolio management. That, from what we see week on week, is continuing to grow.

So are we really past 'Peak ESG'?

Perhaps – but we are still a long way away from the investment management industry concluding its ongoing journey to 'ESG Normalisation'.

ESG Normalisation is the point at which every equity and credit analyst knows they need to consider the material ESG challenges faced by an investee company, just as surely as they know they need to consider its competitor landscape or the indebtedness of its balance sheet. The reason being, these issues are likely to impact the company's enterprise value if not properly managed.

Until that journey is complete, demand for ESG data and analytics will only continue to grow, even if demand for ESG-labelled funds falls.