Sticky inflation, rising interest rates, and recession fears continued to weigh on investor sentiment last quarter. According to Morningstar’s Global Sustainable Fund Flows report, published today, these funds attracted inflows of $13.7 billion in Q3 2023 compared to the revised $23.6 billion in the previous quarter.
Hortense Bioy, Global Director, Sustainability Research, Morningstar said:
“The third quarter was a challenging one again for investors, and sustainability-focused investors were not immune to the gloomy macro environment. Yet, European ESG funds attracted new money again despite a slowdown in product development, greenwashing concerns and the ever-evolving regulatory environment. In the United States, ESG funds suffered a fourth consecutive quarter of net redemptions. A possible factor continuing to weigh on investor demand is the political backlash against sustainable investing in the U.S.”
The exhibit below shows quarterly sustainable fund flows for Europe, the United States, and the rest of the world since Q3 2020.
Key takeaways include:
- Because of falling stock valuations, global sustainable fund assets declined by 4.2% to $2.74 trillion at the end of September from $2.86 trillion three months earlier. By comparison, the global mutual fund and ETF market slid by 5%.
- Despite the challenging macro backdrop, European sustainable funds remained resilient and garnered $15.3 billion of net new money in Q3. Although down from the revised $25.4 billion in Q2, sustainable fund inflows in the last quarter contributed more than two-thirds of the overall European fund flows.
- This picture contrasts with the spiraling outflows from sustainable funds in the U.S., which reached $2.7 billion in Q3. The rest of the world registered muted subscriptions, in aggregate.
- Slowdown in product development continued. Amid greenwashing accusations and regulatory tightening, fewer funds are adding ESG-related terms to their names. Meanwhile, a growing number are removing ESG-related terms from their names in the U.S., but not in Europe.
Europe, the biggest market for sustainable funds, attracted $15.3 billion of net new money in the third quarter, down from the revised $25.4 billion in the previous quarter. Other markets registering inflows were Asia ex-Japan, with $2 billion of net subscriptions, from the restated $1.3 billion three months prior.
Meanwhile, outflows from U.S. sustainable funds spiraled to $2.7 billion from the restated $576 million in the previous quarter.
Europe continued to make up the lion’s share of the sustainable fund landscape, with 84% of global sustainable fund assets. It also remains by far the most developed and diverse ESG market, followed by the United States, which housed 11% of global sustainable fund assets at the end of September 2023.
The full report is available for media to view here. Please use this link if you plan on sharing it with your readers. Do let me know if you would you like to speak with Hortense Bioy, global director of sustainability research.
