Sustainable funds attracted $900m (£718.6m) globally in net inflows in the first three months of 2024, following restated outflows of $88m in the last quarter of 2023, according to Morningstar’s Global Sustainable Fund Flows report.
While overall flows for sustainable funds were positive, in the US, flows retracted by $8.8bn, which Morningstar reported was its ‘worst-ever’ quarter. By contrast, Europe registered $10.9bn in new inflows, which was almost double its amount from the final three months of 2023. In total, Europe accounts for 84% of assets in global sustainable funds, totalling $2.5trn, while the US accounts for 11% at $335bn.
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Hortense Bioy, global director of sustainability research at Morningstar, said: “Sustainable funds have been facing many headwinds in the past couple of years, including elevated energy prices, high interest rates, and an ESG backlash in the US.
“The modest inflows into sustainable funds in the first quarter of 2024 reflect caution ahead of key elections in the US and Europe which will determine the pace of future green policies and encourage or discourage more sustainable practices.”
The positive performance for sustainable funds followed the pattern of overall fund flows, which brought in a total of $52bn for the quarter following outflows of $19bn in the last quarter of 2023.
Despite the increase in fund flows, fund launches fell to 97 in Q1 2024 from 176 in Q4 2023, though Morningstar noted this number is ‘likely to be restated’ with the identification of more launches.
Among European funds, actively managed portfolios lost $11bn during the first quarter of this year. While numbers remained negative, outflows were less than the end of 2023’s decrease of $17.5bn.
“By comparison, flows to the passive space almost levelled with the previous quarter around $22bn. The contrast highlights the continued preference for passive strategies, signalling investors’ focus on cost-effectiveness and beta-like exposure,” the report stated.
BlackRock led the way for flows by firm, drawing in $6.8bn. It was followed by Amundi at $3.7bn and UBS with $3.6bn. On the other end of the spectrum, Eurizon felt $2.9bn in outflows for sustainable funds, with BNP Paribas and Amundi behind at $2.2bn and $1.9bn in losses, respectively.
“Despite the uptick, the small first-quarter net inflows show that investor appetite for ESG and sustainable funds in Europe remains weak by historical standards,” the report commented.
“The lower appetite can be attributed partly to the challenging macroenvironment, including high interest rates, inflation, and fears of recession in some parts of the world. Also, some investors are taking a more cautious approach to ESG investing in the wake of the underperformance of ESG and sustainable strategies in 2022 partly owing to their typical underweight in traditional energy companies and overweight in technology and other growth sectors.”
