Record Outflows from Global Sustainable Funds, Morningstar Reports

By Ross Kerber

(Reuters) -Investors withdrew a record $8.6 billion from global sustainable funds in the first quarter, researcher Morningstar said on Thursday, attributing the outflows largely to the shift against climate and social initiatives by U.S. President Donald Trump.

The biggest driver of the outflows came in Europe, which still accounts for most of the $3.16 trillion in the funds globally. Net withdrawals from European sustainable funds reached $1.2 billion in the first quarter, a reversal from net deposits of $20.4 billion in the prior quarter and the first net outflows for the region since at least 2018.

Trump's return to the White House deprioritized sustainability goals in Europe, Morningstar said in its report, and his actions like executive orders against diversity, equity and inclusion (DEI) efforts have created new legal risks.

Fund performance concerns in areas like clean energy also helped drive out money, Morningstar wrote. U.S. withdrawals were $6.1 billion in the first quarter, the tenth consecutive quarter of withdrawals.

"The quarter signals a shift, not just in flows, but in how sustainable investment strategies are being perceived and positioned in the market,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, in a note accompanying the report.

"We’re seeing further signs of consolidation, rebranding activity, and cautious product development, amid an intensifying ESG backlash in the U.S. which is now also noticeably affecting sentiment in Europe," Bioy said.

New sustainable product launches were 54 in the first quarter, about half of the 105 launched the prior quarter. Asset managers rebranded 335 sustainable funds in the first quarter such as by dropping or changing their environmental, social or governance terms, more than twice as many as in the prior quarter.

(Reporting by Ross Kerber; editing by Diane Craft)