‘Game over’ for ESG investing due to Trump backlash? Analysts say no

cnbc.com:

Investors have pulled money from so-calledESG funds in recent years, amid political backlash, high interest rates and other headwinds.

But analysts say the outlook and long-term investment thesis for the fund category, which stands for «environmental, social and governance,» are favorable.

President Donald Trump's agenda «isn't 'game over' for ESG investing,» Diana Iovanel, a senior markets economist at Capital Economics, wrote in a research note on Tuesday.

Demand for ESG investments «is here to stay» even in the face of political pressure, Iovanel wrote.

ESG investing is known by many names, such as socially responsible, sustainable, impact or values-based investing. Such funds allow people to invest according to certain values, like climate change or corporate diversity.

Investors yanked almost $20 billion from U.S. ESG mutual and exchange-traded funds in 2024, after withdrawing about $13 billion in 2023, according to Morningstar.

By contrast, investors poured $740 billion into the overall universe of mutual funds and ETFs in 2024, Morningstar found.

«I don't think we really expected something different, because of the anti-ESG backlash in the U.S. and the political environment there,» said Hortense Bioy, head of sustainable investing research at Morningstar.

Critics call ESG a form of «woke capitalism» that sacrifices returns for the sake of liberal goals.

Advocates argue that ESG investing positions investors for higher long-term returns because companies that adopt such practices are poised to be more resilient, and therefore more successful, than peers.

Two years of consecutive outflows — in 2023 and 2024 — followed years of steady ESG growth.

Investors have funneled a total $130 billion into U.S. ESG funds over