ESG Backlash: Investors are pulling more cash from sustainable funds than they’re putting in
Sustainable funds saw their first net redemptions ever in the last quarter of 2023, according to a report from Morningstar, as further questions are asked over the value of ‘ESG’.
Environmental, social and governance- focused funds experienced $2.5bn (£1.96bn) of outflows, as US investors pulled a record $5bn from sustainable funds, while European investors still put $3.3bn of new money into the funds.
European ESG funds were saved from greater outflows by the success of passive strategies, which gained $21.3bn of new money throughout the quarter, compared to passive strategies, that lost almost $18bn.
Japanese investors and Canadian investors were similarly negative on sustainable funds, pulling $1.2bn and $200m respectively.
However, throughout the entirety of 2023, sustainable funds still gathered $63bn in inflows, with $76bn of inflows from Europe and $13bn of outflows from the US.
Despite the outflows, sustainable funds globally saw their assets rise eight per cent over the last quarter, now totalling almost $3 trillion.
Meanwhile, product development continued to pick up, with over 120 new sustainable funds hitting the shelves in the fourth quarter.
Hortense Bioy, global director of sustainability research at Morningstar, said: “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.”