NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, September 11, 2017

Donald Trump ran for office last year on promises to slash environmental rules and other regulations, arguing that their benefits weren’t worth the costs they imposed on business. After his surprise victory, some investors wondered whether the recent growth of so-called sustainable investing would be lopped off like a mountaintop above a rich seam of coal. Surely, they thought, companies that placed a primary emphasis on social and environmental issues would see their stocks suffer.

Since January, the President has been hacking away at the regulatory forest—making progress there even as other elements of his agenda have been stymied in Congress. So how have mutual funds in the “ESG” space (environment, social and governance) fared? To riff on an old saying, rumors of their death have been greatly exaggerated.

As it turns out, funds in this category have kept up with the market—even as the market itself has had a strong year. Just as significant: Investors are pouring new money into the category at an unprecedented rate. To wit: the net $3.5 billion of inflows into U.S.-based retail ESG funds and ETFs from January to July of this year. That surpasses inflows for all of 2015 ($2.6 billion), and at the current pace will easily eclipse the record $4.9 billion set in 2016.

“This field is global in nature and has a tremendous amount of momentum,” says Jon Hale, director of sustainable investing research at Chicago-based Morningstar. “In some ways, the election has actually galvanized ESG investors.”

Photo courtesy of Steven Depolo.