Outflows from sustainable investment funds in the United States accelerated during the third quarter, likely due to a political debate that is hostile to investing sustainably, according to the latest report on global sustainable fund flows by Morningstar.
At a global level, inflows stood at a little over half the levels reported for the previous quarter, with Europe remaining firmly established as leader in the sustainable funds arena. Morningstar’s Global Sustainable Fund Flows report reveals these funds saw inflows of 13.7 billion dollars in the third quarter of 2023, down from the revised 23.6 billion dollars in second quarter.
Europe attracted 15.3 billion dollars in net new investments during in the July-September period, though down from the revised 25.4 billion during reported for April-June. Other markets that saw inflows included Asia excluding Japan, which garnered 2 billion dollars, up from a restated 1.3 billion in the prior quarter.
‘Political backlash’
In a stark contrast, US sustainable funds experienced outflows to the tune of 2.7 billion dollars, up from a restated 576 million in the preceding quarter.
“The third quarter posed challenges for investors. European ESG funds continued to attract fresh capital despite concerns over product development, greenwashing, and changing regulations,” said Hortense Bioy, global director of sustainability research at Morningstar. “Meanwhile, the US saw ESG funds experience a fourth straight quarter of net redemptions, possibly due to political backlash against sustainable investing.”
Europe dominates the sustainable fund landscape, holding 84 percent of global assets in this sector. It’s the most mature and varied ESG market, while the US follows at a distance with 11 percent of the world’s sustainable fund assets as of September 2023.
Total assets held worldwide in sustainable funds shrank by 4.2 percent, falling to 2.74 trillion dollars at September’s close, down from 2.86 trillion just three months prior. For context, the global mutual fund and ETF market contracted by five percent, Morningstar pointed out.
Morningstar also observed a marked slowdown in product development. With increasing allegations of greenwashing and more stringent regulations, fewer funds now incorporate ESG-related terms in their names. Conversely, many are dropping ESG-related terminology, especially in the US, while Europe remains less affected.
Quarterly sustainable fund flows, global (USD)
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