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.
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.
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.
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.”
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.”
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.
For more information see Randall Smith “The State of ESG Investing: How Dire Is It?” The Wall Street Journal, July 5, 2026.