Why ESG Investing Might Never Recover

The ESG brand probably has its best days behind it.

Following a three-year craze for investment products focused on environmental, social and corporate-governance concerns, the percentage of newly created funds in the U.S. and Europe with ESG in their name has fallen from a peak of 8.3% to just 3.3%, according to an analysis of quarterly data by Morningstar Direct.

Likewise, online searches for “ESG investing” have plummeted back to mid-2019 levels, according to Google Trends. Mentions of the term in company analyst calls have dropped 59% from their quarterly peak in 2022, FactSet data suggest.

One explanation is the collapse of the clean-energy stocks most readily associated with the ESG movement. Flagging growth in electric-vehicle sales has hit sector behemoth Tesla . The S&P Global Clean Energy index, which lists solar-panel maker First Solar and Danish wind-turbine giant Vestas among its top constituents, has lost 31% since the start of 2023 as renewable-energy projects have been shelved. That compares with returns of 27% for global stocks.

The rise of ESG investing between 2019 and 2022 coincided with a surge in clean-tech valuations, and now the reverse is happening. Investors have pulled $2.2 billion from funds dedicated to decarbonisation since the start of the year, according to EPFR, and the outflows are getting larger every week.

There is a risk that ESG was an investment fad rather than a financial revolution extending across all industries.

The term was the product of an uneasy three-way alliance. On one side were ethically driven investors, who are particularly widespread in Scandinavia and include pension funds, universities and religious organisations united in wanting to shun contentious firms. On another were institutions such as the United Nations that aimed to channel money to industries that benefit society. Finally, there were investors who wanted to profit from the green revolution.

Asset managers jumped at the chance to cater to all three simultaneously. ESG allowed them to differentiate their products, revitalise the case for active management and, at a time of declining fees, charge more for stock screens that often lead to only small changes in allocations . Among U.S. equity funds, ESG strategies have an asset-weighted average fee of 0.52%, compared with 0.33% overall, Morningstar Direct data shows.

But the confusion of motivations made for contradictions and a lot of doublespeak. Neither ethical objectives nor bets on decarbonisation square logically with fund managers’ claims that ESG is a broad path to higher, safer returns.

Yes, an ESG focus can help active managers account for risks such as a regulatory backlash or governance blow up, which in some cases might be highlighted by new company disclosures. This month the European Union cleared the way toward requiring firms to better report and address sustainability impacts.

However, the assumption that integrating ESG criteria into their screening will lead to better stock picking seems flawed . The very popularity of ESG makes it unlikely that the market is under appreciating the risks. The rush of money into firms like Vestas, whose stock hit a price-to-earnings ratio of 534 in 2022, illustrates the risk that shares with high sustainability scores can get too expensive, leading to lower returns.

Ethical investors might be fine with this, but that just shifts the focus to what counts as ethical. Tellingly, interest in ESG has dropped more in the U.S., where the politicisation of EVs and culture wars surrounding Bud Light beer show how easily corporations can become ideological battlegrounds.

ESG ratings aren’t much help in navigating these issues. Different providers give wildly different scores to the same companies, even within the specific “E,” “S” and “G” factors, according to a February paper by the Leibniz Institute SAFE. Researchers also found that environmental concerns tend to explain most of the overall score.

This is another hint that the ultimate driver of the pandemic-era ESG craze might have been a hunger for thematic investment. It has since found better sources of sustenance, as demonstrated by the breakneck growth of firms such as Global X, which is delivering increasingly granular offerings such as tracker funds for electric batteries, cloud computing and ageing populations.

Buyers of these products can be fickle and jump to the next theme—often too quickly for their own good, a Morningstar analysis showed last November. It is possible that the overly generic ESG brand will never recover its appeal, with the different parts of it eventually rebranded to suit their specific client bases. BlackRock , the world’s largest asset manager, has already dropped it and is now emphasising transition themes over ethical stewardship of companies.

Sustainable investing isn’t going anywhere. But a broad tent covering too many interests serves none of them well.

Gold is one of the market’s go-to hedges in rocky times. Don’t forget that gold miners’ stocks are too.

The stock market’s gains in 2026 belie the rocky macroeconomic picture: elevated inflation, heightened geopolitical tensions, and jitters about the artificial-intelligence trade. That backdrop, in theory, should be the time for gold to shine. Instead, the price of the yellow metal has tumbled more than 5% so far, after last year’s blistering 65% rally. In part, the U.S. dollar’s recovery has stymied gold, which benefited from the greenback’s weakness in 2025.

Even with the precious metal’s recent weakness, gold mining stocks could be the best way to profit from this year’s uncertainty.

Gold miners “are a valuable hedge against macro risks that would likely be damaging for equities,” BCA Research’s Noah Weisberger and Rishabh Shah wrote this week.

Concerns about the Federal Reserve’s next moves to tackle inflation, the increasingly crowded AI trade, and steep valuations for tech stocks are just some of the drivers that could help gold’s price get on even footing— and lead to even bigger gains for miner stocks.

These stocks’ prices tend to outpace gold’s moves, because the companies have fixed operational costs. So when gold’s price rallies, their profit margins soar, and vice versa. For instance, the VanEck Gold Miners GDX +7.39% exchange-traded fund has fallen 11% this year as the metal has slumped.

Now, gold’s price just needs to stabilize to help miners’ stocks take off, and that seems to be happening. The precious metal has recently found support above the $4,000 level, and has stuck in a narrow range since the end of June. But its price rose ever so slightly in July, ending a four-month losing streak for the metal. Technical analysis also suggests that gold is due for a comeback.

Barron’s recently wrote that the pullbacks for both gold miners and the metal itself are overdone. Senior technical analyst Doug Busch noted that the VanEck ETF is on the “verge of a breakout” and has the potential to hit $11o in early 2027, up more than 40% from its current price.

Gold miners also have more than their role as a market hedge going for them. Their fundamentals are solid, too, says Chris Mancini, portfolio co-manager of the Gabelli Gold Fund.

“Precious metals miners are generating substantial amounts of free cash flow given profit margins of over $2,000 per ounce, and are returning this cash to shareholders through buybacks and dividends,” he said in an email.

“Buying the miners is a cheap way to get exposure to the price of gold,” he added. His fund owns Newmont NEM +6.71%, a Barron’s stock pick last year, and Agnico Eagle Mines as top holdings, as well as miners Northern Star Resources, Endeavour Mining, and Kinross Gold K+8.59%.

Miners are better businesses than they used to be, the BCA team added.

“Capex is more disciplined, margins are high and rising…and they are largely independent of the AI story,” Weisberger, BCA’s head of equities, and Shah, a senior analyst, wrote.

That last part is key. AI is disrupting the software industry and many other services and information-oriented businesses, and investors have piled into AI stocks. But ChatGPT, Claude, Grok, and other large-language models aren’t going to replace the need to mine for metals.

“Equity portfolios can benefit from exposure to quality that is uncorrelated to AI risk, and gold miners fit the bill,” the BCA team said.

They recommend that investors buy the VanEck Gold Miners ETF, which owns top miners such as Agnico, Barrick Mining ABX +7.24%, and Newmont.

An important bonus for big gold miners’ stocks is that their valuations are attractive after the gold’s pullback, too. The VanEck ETF is now trading at just a little more than nine times next year’s earnings estimates. That’s a big discount to its five-year average price-to-earnings ratio of 14, according to FactSet.

What’s more, the ETF is currently valued at a more than 50% discount to the S&P 500 SPX -0.17%, which is trading for about 19 times earnings estimates for 2027. Mining stocks have typically traded at just a 25% discount to the broader market over the past five years. So there is significant upside for the group if valuations move back toward normal levels.

One factor that complicates mining stocks as a market hedge, of course, is if stocks bounce back, which has been the case so far in August.

But both the market and economic outlooks remain cloudy, and investors remain nervous about the Fed’s next moves and AI stocks. Gold miners should do just fine, even if the anxious mood on Wall Street persists.

Why ESG Investing Might Never Recover

The appeal of the moniker is waning, probably because it is trying to serve too many interests at once