Sustainable funds grab new money worldwide in Q2 but lag in U.S.- Morningstar

Sustainable funds grab new money worldwide in Q2 but lag in U.S.- Morningstar

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)