British investors pull £2.5bn out of ESG funds amid backlash over ‘woke’ stock-picking

British investors have pulled nearly £2.5billion out of ESG funds in the past five months amid a backlash over ‘woke’ stock-picking.

A report by funds network Calastone showed outflows from equity funds that meet ‘environmental, social and governance’ criteria hit £485million in September. 

It was the fifth month in a row of withdrawals and took the total in that period to £2.44billion amid signs the boom in woke investing has reversed.

‘Woke capitalism’ has come under fire for prioritising social goals over the bread-and-butter work of delivering services and goods to customers and making money for investors.

Companies including BAE Systems, Shell and BP have been shunned at times because they are perceived to not conform to ethical investing guidelines.

Critics point out that firms such as BAE are instrumental in helping to defend democracy in countries under attack from aggressors – such as the invasion of Ukraine by Russia.

Questions have also been raised about how ESG standards can be measured and the way in which funds have sometimes seemed to rely on the success of US tech firms, which score well because of their low carbon footprints and diversity policies.

ESG investing – a multi-trillion dollar global industry – has been caught up in wider scepticism about ‘woke’ culture, especially in the US.

But UK investors are also increasingly wary. Figures from Calastone show Britons sold down £304million of ESG funds in May, £369million in June and £330million in July and £953million in August.

Laith Khalaf, head of investment analysis at AJ Bell, said: ‘It feels like the ESG party is running out of steam, with investment flows actually going into reverse.

‘Part of the explanation is likely to be the cyclical nature of fund flows.

‘Three years ago ESG was everywhere, fund groups were launching new products and marketing them like crazy, and the saturation point was probably found pretty quickly.

‘All that money flowing in helped ESG funds perform well, attracting more cash from those who follow fund performance tables.’

Dzmitry Lipski, head of fund research at Interactive Investor, one of the UK’s largest investment platforms, said the data posed questions about underperforming ESG funds. 

He said: ‘We must address the elephant in the room – it is no secret that, in the short-term, sustainable funds have struggled in the recent harsh investment landscape.

‘The issue of potential greenwashing has made careful research all the more crucial.Energy security and mixed messaging on net-zero commitments may also have impacted confidence.’