Investing based on environmental, social and corporate-governance factors has taken a hit over the past several years amid a backlash against so-called woke policies and weakness in ESG funds' performance. But proponents insist it isn't dead.
The backlash has encompassed red-state legal actions and Trump administration moves against climate-change measures and workforce diversity, among other things. That has contributed to a retreat from ESG advocacy and proxy voting by some of the biggest institutional investors.
Yet the underlying concerns that fueled ESG's rise haven't disappeared. They are now being pursued more quietly, and with less public confrontation. Here is the state of ESG funds:
Investor exodus
The pullback in ESG investing has been perhaps most visible in fund flows and performance. After tripling in size between 2018 and 2021, U.S. ESG mutual-fund assets have seen net investor selling since the spring of 2022, when the Russia-Ukraine war sent oil prices rising, hurting the returns of ESG funds that generally avoid fossil fuels.
The outflows alone took a big bite, totaling $65.7 billion since the second quarter of 2022, which equates to 20% of the funds' average assets since then. But the funds' cumulative returns in the same period of 34.9%, fueled mainly by overall U.S. stock-market gains, lifted the funds' asset values to their current level of $350.7 billion as of March 2026 -- just below their record asset value of $367.5 billion at year-end 2025, according to Morningstar.
Another barometer of investor noninterest: U.S. ESG fund launches declined from a peak of 116 in 2021 to nine in 2025. A record 91 were closed.
Ed Farrington, president of sustainability focused Impax Asset Management, says the outflows have been driven by both the "anti-woke political noise" and by ESG funds' recent underperformance due to many being underweighted in the small number of Magnificent Seven and artificial-intelligence stocks that have driven market returns.
For now, he says he believes the impact of the backlash has "run its course." ESG isn't dead, he adds, because it provides useful information about companies' resilience.
The biggest losers
Among ESG mutual funds and their managers, one of the biggest impacts has occurred at Parnassus Investments, whose traditional ESG stock funds generally hold a concentrated set of less than 50 stocks, both shunning fossil fuels and underweighting Magnificent Seven and AI stocks.
Parnassus, which ranked No. 1 among U.S. ESG managers in 2019, has fallen to No. 4, behind index-fund managers BlackRock at No. 1 and Vanguard Group at No. 2, according to Morningstar.
BlackRock, the world's largest asset manager, gained the No. 1 U.S. ESG spot by tripling its fund count to 68 between 2019 and 2023 and putting the funds in its model portfolios and on 401(k) menus. It suffered moderate outflows in 2023 and 2024 after removing some ESG funds from its models before a modest rebound in 2025.
Vanguard, which hasn't sold its limited lineup of just seven ESG funds as aggressively, hasn't suffered much outflows.
Among individual U.S. ESG funds, the $24.2 billion Parnassus Core Equity Fund (ticker: PRBLX) was the largest single fund until earlier this year, and remains No. 2 in assets. The fund has suffered investor withdrawals of $18.4 billion since late 2021 through June of this year, as it trailed the market in 2024-25.
However, its assets are down only 25% from their 2021 peak of $32.3 billion due to the lift from the rising stock market. It holds just 37 stocks and excludes fossil fuels, weapons, tobacco and alcohol, but it does own some of the Magnificent Seven stocks.
Its No. 1 ranking was overtaken by Vanguard FTSE Social Index Fund (VFTAX) with $28 billion as of May 31. The Vanguard fund holds 381 stocks and excludes oil, gas and coal companies, alcohol, tobacco and weapons.
The retrenchment
For other institutional investors, the pullback hasn't been in assets as much as it has been in how ESG is talked about and how they pursue the movement's ideals.
"The ESG acronym has become so politicized at this point we just talk about sustainability integration," says Peter Cashion, head of sustainable investments at the California Public Employees' Retirement System, the largest state pension fund with $620 billion in assets as of June 30.
But he added that the red-state backlash "has not impacted the way we do our business." The fund continues to evaluate climate exposure and governance risks across its portfolio and plans to expand its investments tied to climate solutions over time.
He said Calpers plans to boost its current $60 billion in climate solutions assets to $100 billion by 2030.
At the height of ESG's influence, shareholder activism regularly made headlines. Investors won high-profile votes at major companies on issues from climate disclosure to board composition, and pressure campaigns pushed firms in industries such as energy and consumer goods to articulate plans for reducing their carbon footprint.
But that period of aggressive engagement has cooled.
Take BlackRock, one of the most influential supporters of ESG initiatives thanks to its broad ownership of public companies and the high profile of its CEO Larry Fink. Fink sent letters to CEOs calling climate change "a defining factor in companies' long-term prospects" and pressed for disclosure of their carbon transition plans, among other things.
ESG opponents came to target Fink as the face of their fossil-fuel foes, with one going so far as to park a billboard outside BlackRock's offices portraying Fink as a villain. And eight red states pulled more than $12 billion from BlackRock funds.
Fink and other BlackRock staffers soon moved to reassure red-state officials that the company wasn't against fossil fuels. And BlackRock halted the use of the term ESG, with Fink saying it had been "weaponized."
"I had some of his representatives come to my office and say Mr. Fink is not an enemy of oil and gas," says Wayne Christian, a leader of the red-state ESG opponents and a commissioner of the Railroad Commission of Texas.
Christian said the meeting was followed by a BlackRock effort to "make friends" in Texas that helped BlackRock win removal in 2025 from a Texas blacklist of pro-ESG money managers. BlackRock also won friends in the state by investing in the startup Texas Stock Exchange.
BlackRock in 2023 announced it would invest in a Texas carbon-capture facility with Houston-based Occidental that had been in the works since before the ESG backlash began.
When a TV interviewer asked Fink this past March about the push for ESG and diversity standards, Fink replied: "Do I believe the pendulum five years ago was too far? Yes." Both he and BlackRock are "more pragmatic" nowadays, he said.
Proxy pullback
Utah State Treasurer Marlo Oaks, who chairs the anti-ESG State Financial Officers Foundation, says the most important change in ESG has been the decline in pro-ESG proxy voting by the three largest index-fund managers, which he described as "a top down centralized control agenda." Oaks noted that many or most of the index funds' individual investors didn't realize or intend that their money would be used to advance ESG goals.
BlackRock and two other big index-fund managers, which together own 20% or more of most big U.S. companies' stock, cut back their voting for most ESG proxy proposals in recent years, withdrew from a net-zero climate investment initiative, and have begun to allow investors in their funds to steer their own proxy voting decisions.
BlackRock cut votes on environmental and social issues from 40% to 4%, saying companies have made progress on climate-related disclosures since 2021. After a regulatory change that year broadening the types of issues shareholders could raise, BlackRock has called many of the more recent proxy proposals "overreaching."
For example, according to BlackRock's voting report, it didn't support a 2025 proposal urging that Amazon report on how it will meet its climate goals given its plans for AI and new data centers because Amazon already "regularly" makes such disclosures.
Overall, Calpers says the number of ESG shareholder proposals put to a vote declined by more than 20% during the 2024-25 proxy season, possibly reflecting new regulations giving companies greater freedom to exclude such proposals from the ballot.
(END) Dow Jones Newswires
July 05, 2026 09:00 ET (13:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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