(Bloomberg) — At some of the world's biggest asset managers, the launch of ESG funds is stalling.

BlackRock Inc., DWS Group of Deutsche Bank AG, Invesco Ltd. and UBS Group AG's asset management arm are among the firms that have cut the number of new funds with environmental, social and governance mandates, according to data provided by Morningstar Direct.

This year to the end of May, just over 100 ESG funds were launched globally, putting the industry on track to fall well short of levels seen in recent years, the data show. By comparison, there were 566 ESG fund launches in all of 2023, which was down from the 993 seen in 2022. Additionally, the 16 ESG fund launches in May represent the lowest monthly figure since the start of 2020.

Against a backdrop of political attacks in the US combined with a crackdown on greenwashing in Europe, it is the latest sign that the finance industry is cooling on the ESG label. Since the boom of the pandemic era, a cocktail of higher inflation, higher interest rates and a decline in clean energy stocks has depressed ESG fund performance. The ones that do well are generally filled with tech stocks, many with questionable ESG attributes.

ESG also continues to come under attack in the US, where the Republican Party has imposed bans and threatened lawsuits against perceived perpetrators. And in Europe, stricter rules for naming ESG funds appear to be in place to remove the label from some passively managed portfolios.

According to Morningstar, BlackRock has launched four new ESG funds this year, compared with 36 in 2022 and 23 last year. DWS is down to three this year from 25 in 2023. Invesco has launched just one ESG fund so far in 2024, compared with 12 in 2023. UBS has launched six sustainable funds this year, down from 16 last year and 26 in 2022 .the data takes into account the acquisition of Credit Suisse by UBS in 2023.

Read more: Wall Street begins to call time on ESG labels following the reaction

“ESG fund launches have fallen due to underperformance, poor product design and politics,” said Huw van Steenis, partner and vice chairman at Oliver Wyman. “Once again, investors have learned the hard way that acronym investing is never a sustainable way to allocate capital.”

The contrast with conventional funds is strong. The broader market is on pace for a similar level of fund creation this year, with launches at the end of May reaching 2,576, or about 40% of the total for all of 2023.

And when it comes to the amount of assets held by new funds, conventional funds pulled in $158 billion at the end of May, not far from the $183 billion recorded in all of 2023, according to Morningstar. Newly launched sustainable funds attracted $6.8 billion, compared to a total of $37.2 billion in 2023.

Just a few years ago sustainable investing was good business for Wall Street, a way for asset managers to protect their ability to make money while also paying attention to companies' carbon footprints and impact. social. with the reaction of the Republicansit quickly became a liability for those who had actively promoted their ESG credentials.

There may be some new reasons for ESG optimism. At least five US-based ETFs with ESG in their titles posted returns of more than 20% this year, outpacing the S&P 500's 18.8% advance.

Asset managers who have scaled back on offering new stable funds say the development is a reflection of a rising market.

There is now less “white space” in the product offering after several years of building up the sustainability range, it said Christoph Zschaetzsch, who leads product development for DWS's active funds business. He characterizes the development as “a normalization.”

Last year and 2022 “were the growth years for ESG,” it said Michael Mohr, head of product development at DWS's Xtrackers franchise, which consists primarily of exchange-traded funds. At the time, it was “forward” for ESG and “all providers looked to supplement their stable range with new releases to meet growing demand,” he said.

Now, it's more about “fixes and tweaks to products that are already out there in the market,” Mohr said. However, demand is now “much more specific, with clients looking for specific climate solutions or funds that focus on a theme, such as net zero or biodiversity”, rather than just ESG as a general theme, he said.

At Invesco, the “heavy building” of its ESG fund business is now complete, a spokeswoman for the asset manager said. Any future releases will be done more selectively to fill any gaps that have been identified, she said.

One fund manager that continues to build its range at a pace similar to previous years is Amundi SA.

The French asset manager has launched 14 funds focused on responsible investment in 2024 and plans to expand its range of net zero strategies and ESG ETFs available as part of it. ESG Ambition 2025 plan, said Elodie Laugel, the firm's chief investment officer.

Having built a “comprehensive and granular” offering of responsible investment products, Amundi will now focus on meeting client demand as “end-client preferences evolve, the regulatory landscape adjusts and sustainability risks become more pressing,” it said. she.

Spokesmen for UBS and BlackRock declined to comment on the decline in their ESG fund launches.

Morningstar data covers open-end funds and ETFs globally that are classified as sustainable investments under the framework of market researchers, which excludes feeder funds and fund of funds.