ESG investments: how serious is the situation in the field?

The backlash has included legal action by Republican states, as well as moves by the Trump administration against measures to deal with climate change and promote diversity in the workplace, among others. As a result, some of the largest institutional investors have withdrawn from promoting the principles of ESG and from voting through representatives or proxies.

However, the issues that led to the rise of the investments ESG did not disappear. Today they are promoted more quietly, and with considerable avoidance of public confrontations. This is what the state of ESG funds looks like today.

The flight of investors

The withdrawal from investments ESG Particularly noticeable in the cash flows to the funds and their performance. After the scope of the assets in the American mutual funds of the type ESG Tripled itself between 2018 and 2021, investors began to sell them only since the spring of 2022, when the war between Russia and Ukraine led to an increase in oil prices and hurt the returns of funds ESG which tend to avoid investing in fossil fuels.

According to Morningstar, the redemptions alone subtracted a significant share from the assets, amounting to $65.7 billion since the second quarter of 2022, an amount equal to 20% of the funds’ average assets during that period. However, the cumulative return of the funds during that period, which stood at 34.9% and was mainly influenced by the overall increases in the American stock market, raised the value of their assets to $350.7 billion as of March 2026, slightly below the record of $367.5 billion recorded at the end of 2025.

Another indicator of the decline in investor interest: the number ofESG New releases in the United States dropped from a record 116 in 2021 to just nine in 2025. At the same time, a record number of 91 funds were closed.

Ed Farrington, president of Impex Asset Management, which specializes in sustainability investments, says the redemptions were due to “anti-walk political noise” and the underperformance of funds ESG In the recent period, because many of them held insufficient weight in the limited number of shares of the “Magnificent Seven” (the technology giants) and the artificial intelligence shares that led the increases in the market.

For now, he says, he believes the impact of the backlash has “spent itself.” According to him the ESG are not dead and still have a role in providing useful information about the resilience of societies.

The big losers

Among ESG funds and their managers, one of the most significant vulnerabilities was registered at Fransos Investments, whose traditional equity funds in the field usually hold a concentrated portfolio of less than 50 stocks. The funds avoid investing in fossil fuels and hold an underweight in the “Magnificent Seven” and artificial intelligence (AI) stocks.

According to Morningstar, Francisos, which was ranked first among ESG fund managers in the United States in 2019, dropped to fourth place, behind Blackrock in first place and Vanguard Group in second place.

BlackRock, the largest asset manager in the world, took first place in the mutual funds marketESG Having tripled the number of its funds, to 68, between 2019 and 2023, and integrated them into its model portfolios and investment options in the 401 savings plans(k) . After removing some of the foundations of theESG of its model portfolios, it recorded moderate redemptions in 2023 and 2024, before a moderate recovery in 2025.

Vanguard, which did not as aggressively market its limited ESG fund offering, which includes only seven funds, recorded almost no redemptions.

among the fundsESG Americanism, Francis Cor Equity Fund (PRBLX) which manages assets in the amount of 24.2 billion dollars, was the largest until earlier this year, and is still ranked second in terms of the volume of assets. The fund received redemptions of $18.4 billion from the end of 2021 until June of this year, during which it lagged behind the market’s performance in 2024 and 2025.

However, the extent of its assets decreased by only 25% compared to the record of 32.3 billion dollars recorded in 2021, thanks to increases in the stock market. The fund owns only 37 stocks and does not invest in fossil fuels, weapons, tobacco and alcohol, but also includes some of the “Magnificent Seven” stocks.

The first place was taken by the Vanguard Fund FTSE Social Index Fund (VFTAX) which managed assets amounting to 28 billion dollars as of May 31. The fund owns 381 shares and does not invest in oil, gas and coal companies, as well as in companies from the areas of alcohol, tobacco and weapons.

The retreat of the trendsetter

With other institutional investors, the withdrawal is not expressed precisely in the scope of the assets, but in the way they talk about ESG and in the way in which the principles underlying it are promoted.

“the term ESG It’s become so political that now we’re just talking about incorporating sustainability considerations into investments,” says Peter Cashen, director of sustainable investments at the California Public Employees’ Retirement Fund. (CalPERS), The largest state pension fund in the United States, which managed assets amounting to 620 billion dollars as of June 30.

However, he added that “the backlash from the Republican states has not affected the way we conduct our business.” The fund continues to assess the exposure to climate risks and corporate governance risks in its entire investment portfolio, and plans to increase over time its investments in solutions to deal with climate change.

according to him CalPERS plans to increase the amount of assets invested in climate solutions from $60 billion today to $100 billion by 2030.

At the peak of the influence of investments ESGshareholder activism regularly featured in the headlines. Investors have been able to pass landmark votes at major companies on issues ranging from climate impact disclosure to board composition, and public campaigns have pressured companies in industries such as energy and consumer goods to present plans to reduce their carbon footprints..

But this period of aggressive involvement has waned.

Take for example Blackrock, one of the most influential supporters of initiatives ESG, Thanks to its extensive holdings in public companies and the prominent status of the company’s CEO, Larry Fink. Fink sent letters to CEOs in which he defined climate change as “a decisive factor in the long-term prospects of companies”, and called, among other things, to reveal their transition plans to a low-carbon economy.

Opponents of ESG began to see Fink as the face of the fight against the fossil fuel industry. One of them even went so far as to place a billboard outside Blackrock’s offices, in which Fink was portrayed as a villain. At the same time, eight Republican states withdrew more than 12 billion dollars from Blackrock funds.

Shortly after, Fink and other executives at Blackrock began to reassure the representatives of the Republican states, and to make it clear that the company is not opposed to fossil fuels. Blackrock also stopped using the term ESG And Pink said the term “has become a weapon.”

Wayne Christian, one of the leaders of the opposition to ESG in the Republican states and a member of the Texas Railroad Commission, said that “some of Fink’s representatives came to the offices and said that he is not an enemy of the oil and gas industry.”

Christian said that following the meeting, Blackrock launched an effort to “make friends” in Texas, which helped it remove its name in 2025 from the state of Texas’ blacklist of ESG-supporting investment managers. Blackrock has also acquired allies in the country by investing in the new Texas Stock Exchange venture.’ (TXSE).

In 2023 Blackrock announced that it would invest in a carbon capture facility in Texas, in partnership with Occidental of Houston, a project that was under development even before the backlash against ESG.

When a TV interviewer asked Fink last March about promoting standards ESG And diversity, Fink replied: “Do I think five years ago the pendulum swung too far? Yes.” He added that today he and Blackrock are “more pragmatic”.

Substantial reduction of proxy votes

Marlo Oaks, Utah State Treasurer and Chairman of the State Financial Officers Foundation, which opposesESG Says that the most significant change in the field is the decrease in support for proposals ESG As part of proxy votes by the three largest index fund managers. According to him, this is an “agenda of centralized control from top to bottom”. Oakes added that many, and perhaps even most, of the private investors in the index funds were not aware that their money would be used to promote ESG goals, nor did they intend to.

Blackrock and two other large index fund managers, which together own 20% or more of the shares of most major companies in the United States, have in recent years reduced their support for most ESG proposals put up for proxy voting, withdrew from the Climate Investment Initiative to Reset Net Emissions, and have begun allowing investors in their funds to determine for themselves how their voting rights will be exercised through proxies.

Blackrock reduced its support rate for proposals on environmental and social issues from 40% to 4%, arguing that companies have made progress since 2021 when it comes to disclosing climate-related information. Following a regulatory change that took effect that year that expanded the types of issues shareholders could raise, Blackrock described many of the proxy proposals submitted in recent years as “far-reaching”.

For example, according to Blackrock’s voting report, the company did not support in 2025 a proposal that called on Amazon to report how it intends to meet its climate goals, given its plans in the field of artificial intelligence and the establishment of new data centers, because, according to it, Amazon already publishes such information “on a regular basis.”

Overall, Clappers said the number of shareholder ESG proposals put to a vote fell by more than 20% during the 2024-2025 proxy voting season, possibly due to new regulations that give companies greater freedom to exclude such proposals from the voting agenda..