Global ESG Funds See Negative Flows For First Time In Q4 2023

Morningstar reports that the global universe of ESG and sustainable funds saw redemption of close to USD 2.5 billion in the last quarter of 2023, which was the first time net flows fell into negative territory, against a continuously challenging macroeconomic and geopolitical backdrop and waning investor appetite for ESG investments. In 2023, global sustainable funds still gathered USD 63 billion.

Key takeaways

  • Global sustainable funds experienced net outflows for the first time in the fourth quarter of 2023. Investors withdrew USD 2.5 billion, while the broader market of open-end funds and exchange-traded funds also suffered redemptions against a continuously challenging macroeconomic and geopolitical backdrop.
  • In Europe, sustainable funds held up better than the broader market and garnered USD 3.3 billion of net new money in the fourth quarter, thanks to passive funds, which collected USD 21.3 billion. Actively managed sustainable funds, however, bled close to USD 18 billion.
  • Over the full year, European sustainable funds garnered USD 76 billion. By comparison, European conventional funds suffered annual outflows of USD 50 billion.
  • Investors pulled a record USD 5 billion from U.S. sustainable funds in the last quarter, for a total of USD 13 billion over 2023.
  • Supported by stock and bond price appreciation, global sustainable fund assets rose by 8% over the last quarter to almost USD 3 trillion at the end of December.
  • Product development picked up. More than 120 new sustainable funds hit the shelves globally in the fourth quarter.

Hortense Bioy, global director of sustainability research, Morningstar, commented: “The global ESG fund flow picture in the last quarter may look bleak, but ESG funds in Europe –by far the largest market– continued to hold up better than the rest of the fund universe. Global ESG fund assets kept rising too. The disappointing reality is that active managers failed again to prevent redemptions in a corner of the market where it’s easier for them to prove their worth. By contrast, passive funds demonstrated consistent resilience.”

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