ESG Market in US Significantly Smaller Than Earlier Thought

The US market for ESG-related products is less than half the size previously reported, according to the main umbrella organization for sustainable investing.

US SIF Foundation said sustainable assets total about $8.4 trillion this year. That’s down from the $17.1 trillion stated two years ago, with the difference largely due to changes in the methodology used to calculate the numbers. Given the research adjustment, comparing the numbers is like equating “apples and pears,” the industry group said.

Still, the huge drop in the US market for assets that take environmental, social and governance factors into account looks set to play out across the world. That’s as investment firms in Europe start stripping ESG labels from funds amid stricter rules in the region, and as Asian regulators also set stricter standards.

“The market is clearly taking a more critical eye toward the less robust end of the spectrum, leading to a reset both here and in Europe,” said Rob Du Boff, senior ESG analyst at Bloomberg Intelligence in New York.

ESG purists have long called for a reset of the market amid signs the label was being applied far too liberally. The tag has been attached to everything from swaps and other derivatives to repurchase agreements. Some ESG fund managers even held Russian government bonds until shortly before Vladimir Putin invaded Ukraine.