Global sustainable funds experienced net outflows of $2.5 billion in the final three months of 2023 against a challenging macroeconomic and geopolitical backdrop, data from Morningstar has revealed.
Sustainable funds in Europe fared better than the broader market, amassing $3.3 billion of net new money in the fourth quarter as a result of passive funds, which collected $21.3 billion. Actively managed funds, however, lost close to $18 billion.
Other markets that recorded inflows were Asia ex-Japan, which collected $77 million in the last quarter, while Australia and New Zealand also continued their recovery, attracting $567 million of flows.
In contrast, investors pulled a record $5.1 billion from US sustainable funds in the last quarter for a total of $13 billion over 2023.
Overall, Morningstar said global sustainable fund assets rose by 8.2% to $3 trillion at the end of the fourth quarter against a mixed macroeconomic backdrop, including the end of a rate-tightening cycle, artificial intelligence boom, geopolitical risks and fears of recession among some of the major world economies.
Europe continued to make up the lion’s share of the sustainable fund landscape, accounting for 84% of global sustainable fund assets. It remains the most developed and diverse ESG market, followed by the US.
Hortense Bioy, global director of Morningstar, said: “The global ESG fund flow picture in the last quarter may look bleak but ESG funds in Europe 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.”
Morningstar said an estimated 121 new sustainable funds hit the shelves globally in the fourth quarter, marginally up from the 114 launched in the third quarter of 2023.
