Global Sustainable Funds Enter Negative Territory for the First Time

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by Matt Davies

February 5, 2024

In the closing quarter of 2023, the global sustainable funds landscape witnessed a historic shift as net outflows of $2.5 billion marked the first dip into negative territory, according to Morningstar’s report, “Global Sustainable Fund Flows: Q4 2023 in Review.”

The report, released every quarter, “examines open-end funds and ETFs focused on impact, sustainability, or environmental, social, and governance (ESG) risk factors,” Morningstar explains, noting that this edition “specifically covers recent activity in the global sustainable fund universe and details regional flows, assets, and launches for the fourth quarter of 2023.”

While sustainable funds declined globally overall, Morningstar found that European funds “remained resilient,” attracting $3.3 billion in net new investments, primarily propelled by passive funds. Asia-ex Japan funds also continued to see inflows.

Europe, however, the world’s biggest sustainable fund market, still attracted fewer investments in Q4 of 2023 than it did in Q3, when it attracted $11.8 billion. In Europe, sustainable funds performed better than conventional funds in Q4 of 2023.

The report also highlighted a “minor uptick” in the number of sustainable funds launched around the world in the fourth quarter of 2023 — 121 compared to 114 in Q3 — and found the global assets of sustainable funds to have increased by 8.2%.

The United States, meanwhile, experienced significant setbacks: Investors pulled as much as $5 billion from American sustainable funds in Q3 of 2023, contributing to a total of $13 billion outflows for the year.

As Morningstar notes: “In addition to middling returns, greenwashing concerns persisted in the absence of clear regulation for ESG and sustainable investing. Finally, the continued politicisation of ESG investing contributed to a chilling effect on demand for sustainable funds.”

As to global assets in sustainable funds, Morningstar found that they reached $3 trillion in Q4, which represents an 8.2% increase compared to the previous quarter. Similarly, assets in sustainable funds in Europe saw a 7% increase in Q4 compared to Q3.

This article was originally published on IMPAKTER. Read the original article.

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