Challenging market conditions prompt investors to drop green funds
Sticky inflation, rising interest rates and recession fears continued to weigh on investor sentiment during the last quarter, according to fresh research shared with Net Zero Investor today.
In fact, global sustainable investments funds attracted inflows of $13.7 billion the third quarter of 2023, compared to $23.6 billion in the previous quarter.
Moreover, green fund assets declined by 4.2% to $2.74 trillion at the end of September, from $2.86 trillion three months earlier.
By comparison, the global mutual fund and ETF market slid by 5%.
“The third quarter was a challenging one for investors, and sustainability-focused investors were not immune to the gloomy macro environment," explained Hortense Bioy, gobal director, sustainability research at Morningstar, which carried out the research.
However, Bjoy did add that "ESG funds attracted net new money despite a slowdown in product development, greenwashing concerns, and the ever-evolving regulatory environment."
Europe and the U.S.
Despite the challenging macro backdrop, European sustainable funds remained resilient and garnered $5.3 billion of net new money in during the third quarter.
Although down from the second quarter, sustainable fund inflows in the last quarter contributed more than two-thirds of the overall European fund flows.
This picture contrasts with the spiralling outflows from sustainable funds in the U.S., which reached $2.7 billion in the third quarter.
Also, the slowdown in product development continued. Amid greenwashing accusations and regulatory requirements tightening, fewer funds are adding ESG-related terms to their names, the research showed.
Meanwhile, a growing number of funds removed ESG-related terms from their names in the U.S., but not in Europe.
"ESG funds suffered a fourth consecutive quarter of net redemptions. A possible factor continuing to weigh on investor demand is the political backlash against sustainable investing in the U.S," Bjoy concluded.