Sustainable fund flows fall to $13.7bn in Q3

Sustainable fund inflows stood at $13.7 billion in Q3 2023 compared to $23.6 billion in the previous quarter, according to the latest Morningstar Global Sustainable Fund Flows report.

Key highlights of the report 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.

• 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 outflows from sustainable funds in the US, which reached $2.7 billion in Q3.

• 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 US, 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 US sustainable funds rose to $2.7 billion from the restated $576 million in the previous quarter.

Hortense Bioy, Global Director, Sustainability Research, Morningstar says, “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.”