Flows into global sustainable funds fell significantly over the third quarter of 2023, despite posting overall positive inflow levels, according to Morningstar’s latest Global Sustainable Fund Flows report.
It showed funds attracted $13.7 billion in the third quarter, down from $23.7 billion in Q2 while assets under management dropped by 4.2% between the two quarters to $2.7 trillion.
Morningstar noted that the global mutual fund and exchange traded funds (ETF) assets also declined by 5% during the period.
The report found that European sustainable funds remained resilient with $15.3 billion of net new money over the three months to the end of September.
Although much lower than the revised $25.4 billion inflows in the previous quarter, sustainable fund flows contributed more than two-thirds of the overall European fund flows.
By contrast, the US is going in the opposite direction with investors having pulled $2.7 billion from these type of investmens during the quarter.
Overall, the report noted that Europe accounted for 84% of global sustainable fund assets and remained the most developed and diverse ESG market globally, followed by the US, which housed 11% of assets.
Hortense Bioy, global director of sustainability research at Morningstar, said, “The third quarter was a challenging one again for investors, and sustainability-focused investors were not immune to the gloomy macro environment.”
She added, “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.”
She noted the political backlash against sustainable investing in the US could be a “possible factor” continuing to have a negative impact on investor demand in the ESG space.
ESG has become a political flashpoint with conservative Republicans launching an attack on sustainable investing.
In the first six months of the year, around 49 anti-ESG bills were introduced across the US, according to the law firm Ropes & Gray. This was in addition to the 22 launched in 2022.
Earlier in the year, Florida Governor Ron DeSantis, formed an alliance with a group of 18 other Republican governors oto “protect individuals from the ESG movement that threatens the vitality of the American economy and Americans’ economic freedom.”
