BlackRock’s ESG Fund Drops $9B in AUM in 2023

The iShares ESG Aware MSCI USA ETF (ESGU) is on pace to be the biggest ETF loser of 2023.  

The fund’s $9.1 billion in outflows are well ahead of the $6.1 billion that has come out of the iShares Russell 1000 Value ETF (IWD) and the $4.9 billion dropped by the iShares Russell 1000 Growth ETF (IWF), the second and third funds, respectively, in total annual outflows.  

Still, ESGU remains the largest U.S.-listed ESG exchange-traded fund on the market, ahead of the iShares ESG Aware MSCI EAFE ETF (ESGD) and the Vanguard ESG US Stock ETF (ESGV), which have assets under management of $7.1 billion and $6.6 billion, respectively. 

The losses have transformed ESGU into a much smaller ETF than it was last year. Currently, the fund’s assets under management total $12.5 billion, or half of its peak AUM of $25.9 billion set early in 2022.  

Analysts have pointed to ESGU as evidence that investors are abandoning ESG strategies. While the data is ominous for the category as a whole, flows data suggests there’s been some portfolio reshuffling among big institutions, but investors aren’t shifting out of these funds en masse. 

A portion of ESGU’s outflows have been attributed to tweaks in BlackRock’s model portfolios, which pushed billions of dollars of cash from ESGU into the iShares MSCI USA Quality Factor ETF (QUAL).  

“As we actively manage our models to capture opportunities in the market, some ETFs included in BlackRock model portfolios experience inflows or outflows, driven by advisers who trade their clients’ portfolios in line with BlackRock’s models,” BlackRock told the FT in March. Moreover, net outflows from all ESG ETFs in 2023 are around $7.5 billion, which means that excluding ESGU, exchange-traded funds focused on ESG strategies have seen net inflows of around $1.5 billion. 

Biggest ESG Inflows 

The iShares Climate Conscious & Transition MSCI USA ETF (USCL) and the Xtrackers MSCI USA Climate Action Equity ETF (USCA) have registered the largest year-to-date inflows of all ESG ETFs this year—$2.2 billion and $2 billion, respectively. 

However, those inflows were matched by equivalent outflows from the iShares ESG MSCI USA Leaders ETF (SUSL) and the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG). 

The matching inflows and outflows reflect portfolio changes made by Ilmarinen, Finland’s largest private pension insurance company.  

“The change was made in order to participate better in the climate megatrend,” Juha Venalainen, a senior portfolio manager with Ilmarinen, told Bloomberg in April. 

Besides USCL and USCA, the largest ESG inflows have gone into the iShares ESG Aware US Aggregate Bond ETF (EAGG), the iShares ESG Aware MSCI EM ETF (ESGE) and the iShares Paris-Aligned Climate MSCI USA ETF (PABU).  

Taken in totality, this year’s flows data suggests there’s been some portfolio reshuffling among big institutions, and ESG ETFs have been impacted. But we haven’t seen investors shift out of these funds en masse.