## [# BlackRock Dissolves ESG Funds as Firm Steps Back From Label ](/sections/news/blackrock-dissolves-esg-funds-firm-steps-back-label)
# BlackRock Dissolves ESG Funds as Firm Steps Back From Label
The asset manager is shedding funds in the face of backlash from conservatives in the U.S.
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[By Lucy Brewster](/authors/lucy-brewster)
Sep 22, 2023
Edited by: Mark Nacinovich
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BlackRock Inc., along with a slew of other firms, has recently shut down funds that overtly focused on ESG (environmental, social and governance) initiatives as the movement faces backlash from conservatives in the U.S.
[BlackRock](https://www.etf.com/topics/blackrock) announced the closure of two ESG-focused mutual funds on Sept. 15, while other firms such as State Street Corp., Janus Henderson Group and Columbia Threadneedle Investments have dissolved ESG funds so far in 2023, according to [Bloomberg](https://www.bloomberg.com/news/articles/2023-09-21/blackrock-state-street-among-money-managers-closing-esg-funds?utm_source=website&utm_medium=share&utm_campaign=twitter&sref=MAODZZNF). More sustainable funds in the U.S. have closed this year than in the past three years combined.
When [ESG funds](https://www.etf.com/topics/esg) became a popular trend in 2020 and 2021, firms rolled out a host of ETFs and mutual funds that focused on climate and social causes. But conservative backlash in the U.S. has stymied the growth of many of them. Now, funds are closing as many see outflows and poor performance.
BlackRock’s [**iShares ESG Aware MSCI USA ETF (ESGU)**](https://www.etf.com/ESGU) saw about $2.2 billion in outflows in the second quarter of 2023, the most of any sustainable ETF, [according to Morningstar](https://www.morningstar.com/lp/global-esg-flows?utm_source=eloqua&utm_medium=email&utm_campaign=none&utm_content=47131&elqTrackId=E27ACFEE53AEB29745C32E7884A9285F&elq=777012df22634ac7b879743ac7286f1d&elqaid=47131&elqat=1&elqCampaignId=23225).
According to etf.com, there are 50 exchange-traded funds that focus on ESG with a combined $70.4 billion. The largest is the [**iShares MSCI EAFE Growth ETF (EFG)**](https://www.etf.com/EFG) with nearly $12 billion in assets.
## **More ESG Funds Closing**
While the majority of ETF ESG funds launched in recent years are still on the market, Alyssa Stankiewicz, a sustainability analyst from Morningstar, noted that ESG-focused ETFs have been closing at a faster rate in the past year.
“What we're seeing is that the ESG ETFs that have been launched are more likely to still be alive \[compared with non-ESG ETFS\]. However, when you look at the different closure rates, it does look like the closure of ESG ETS has picked up in 2022 and then 2023,” she said.
Stankiewicz said that while more ESG funds are closing, firms aren’t shutting down initiatives completely. “I don't think it's quite as simple as asset managers are finished with ESG investing,” she said.
Another reason that ESG funds are closing is that three years post-launch is a common time frame to shut down a fund that is garnering lackluster investor reception. The ebb and flow of financial products is typical, Stankiewicz said.
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## **ESG ETFs Face SEC Scrutiny**
ESG-focused funds are not only being ditched by any investors, but many are now facing regulatory scrutiny.
The Securities and Exchange Commission [amended its decades](https://www.reuters.com/sustainability/us-sec-poised-ban-deceptive-esg-growth-fund-labels-2023-09-20/) old “Name Rule” to require that 80% of a fund’s portfolio be assets that reflect the fund’s name. The move is meant to target ESG funds that charge extra fees for specialized management but in reality match lower fee broad index funds.
## **More Demand Abroad**
While ESG-focused funds are seeing outflows in the U.S., they are gaining steam internationally. Globally, sustainable funds brought in $18 billion internationally, according to Morningstar.
As ETF demand grows globally, ESG and climate-focused funds could fare far better in Europe. “You can’t live in the U.S. without seeing how polarizing ESG is,” said Deborah Fuhr, founder of ETFGI, an ETF research firm. “Clearly, ESG is something that resonates in Europe in a way it does not in the U.S.”
[ Lucy Brewster Finance Reporter ](/authors/lucy-brewster)
Lucy Brewster is a finance reporter at etf.com covering asset managers, emerging technologies, and regulation. She hosts etf.com webinars and appears… [View Bio](/authors/lucy-brewster)
Related Topics [Blackrock](http://www.etf.com/topics/blackrock)
[ESG](http://www.etf.com/topics/esg)
[Eaton Vance](http://www.etf.com/topics/eaton-vance)