(Bloomberg) -- Japanese retail investors are abandoning ESG mutual funds. 

Investors pulled a total of 660 billion yen ($4.5 billion) from funds last year, according to the research firm Morningstar.  That’s more than four times the outflows of 150 billion yen in 2022. 

The shift is due to investors favoring mutual funds focused on specific investment themes rather than sustainability goals related to ESG funds. In 2021, ESG funds boomed in Japan with total inflows of 1.8 trillion yen. Now investors are more interested in areas such as foreign index funds.

“Rather than being a response to investor demand for sustainable investments, ESG was seen as a theme,” said Daisuke Motori, director of manager research at Morningstar Japan

Investors are still pouring money into mutual funds, with inflows exceeding outflows for 11 months of the last year. 

The outflow of capital from ESG funds has hammered the industry’s growth. According to a Morningstar report, there were no new ESG products launched between October and December of last year.

Interest in ESG funds among retail investors is unlikely to recover, according to Kai Ebisawa, fund analyst at Matsui Securities. He expects the shift to other investment areas to continue. 

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