Global sustainable funds attracted $29 billion of net new money in the first quarter of this year, down from nearly $38 billion in the previous quarter.
Inflows were lower in most regions as macroeconomic pressures, including rising interest rates, inflation, and a looming recession, continued to weigh on investors.
Despite lower inflows, global sustainable fund assets continued their recovery to hit $2.74 trillion at the end of March, according to Morningstar's latest Global Sustainable Fund Flows report, which examines recent activity in the global sustainable fund universe and details regional flows, assets, and launches.
Europe
Europe continued to make up the lion's share of the global sustainable fund landscape with 84% of assets.
It also remains the most developed and diverse ESG market, followed by the U.S., which housed 11% of global sustainable fund assets at the end of March 2023.
However, Europe saw a significant reduction of new sustainable fund launches, amid regulatory uncertainty and fears of greenwashing accusations, while the rest of the world kept their momentum.
Sustainable funds in the U.S. experienced their third quarter of outflows in a year, with $5.2 billion being pulled in Q1 2023.
One possible cause of damping investor demand for ESG products is the growing political backlash against sustainable investing.
Republican governors from at least 19 U.S. states have pledged to resist ESG investing over antitrust, consumer protection, and discrimination concerns.
