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Sustainable funds grab new money worldwide in Q2 but lag in U.S.- Morningstar
Global Banking & Finance Review®
Company
By Isla Binnie
NEW YORK (Reuters) – New money flowed into sustainable funds globally in the three months to June even as investors pulled out of funds as a whole in the face of stubborn inflation, high interest rates and fears of recession, Morningstar Direct research showed.
Funds with assets focusing on sustainability or environmental, social and governance (ESG) factors welcomed $18 billion in the second quarter, less than the $31 billion deposited in the previous three months but a better showing than the $37 billion pulled from investment vehicles overall.
In the United States, a smaller market for sustainable funds which has also seen Republican politicians fiercely criticise ESG, outflows slowed to $635 million from losses of more than $5 billion in each of the previous two quarters.
By contrast, U.S. funds overall attracted $20 billion in the period, prompting Morningstar to remark that “weak demand for sustainable funds in the last three months was a notable departure from the total universe”.
The researchers blamed some of the $11.4 billion in outflows from U.S. sustainable funds over the past year on market volatility and the unforgiving macroeconomic backdrop.
“Another possible factor continuing to weigh on investor demand for ESG products is the political backlash against sustainable investing in the U.S.,” they added.
In Europe, the pattern was reversed, with sustainable funds attracting $20 billion in net new money, while conventional funds in the region lost $19 billion, Morningstar said.
Despite weakening flows, the value of assets in sustainable funds both globally and in the United States specifically continued a growth trend that began in late 2022.
Sustainable funds’ relatively high exposure to the technology sector, which acted as a drag last year, is now proving beneficial.
“The rise in tech stocks, along with rising valuations across the markets, certainly provided a boost to sustainable fund assets and returns,” said Morningstar Associate Director of Sustainability Research Alyssa Stankiewicz.
(Reporting by Isla Binnie; Editing by Sonali Paul)
Sustainable funds are investment vehicles that focus on companies and projects that meet certain environmental, social, and governance (ESG) criteria, aiming to generate positive social and environmental impact alongside financial returns.
ESG stands for Environmental, Social, and Governance. It refers to the three central factors used to measure the sustainability and societal impact of an investment in a company or business.
Investment outflows refer to the movement of capital out of investment funds or accounts, often indicating that investors are withdrawing their money due to various factors such as market conditions or economic uncertainty.
Market volatility refers to the rate at which the price of securities increases or decreases for a given set of returns. It is often associated with uncertainty in the market and can lead to rapid price changes.
A recession is a significant decline in economic activity across the economy that lasts for an extended period, typically visible in GDP, income, employment, manufacturing, and retail sales.
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