Sustainable investment fund closures outpace new products for first time ever
Investors pulled $2.7 billion from sustainable funds in the United States during the third quarter of this year, for a total of $14.2 billion in the last 12 months, according to fresh data shared with Net Zero Investor this morning.
For the first time in recent history, sustainable fund closures and departures outpaced new products in the world's largest investment market.
The withdrawals mark the segment’s fourth consecutive quarter of net outflows, primarily due to factors such as rising energy prices, high interest rates, concerns about greenwashing, and political backlash, according to a new Morningstar report.
Moreover, the broader universe of U.S. funds also lost nearly $3.9 billion, but the relative decline in demand was more significant for sustainable funds compared with conventional peers, the researchers stressed.
Driven by withdrawals and poor market performance, assets in sustainable funds shrank below $298.8 billion.
One mutual fund – iShares ESG Aware MSCI USA ETF – accounted for most of the segment’s outflows, shedding nearly $2.1 billion in the third quarter alone.
At the end of Q3, the group of U.S. sustainable funds numbered 661, up 11% from the start of the year but sustainability-focused product development slowed significantly in the third quarter as fewer new funds launched than at any point in the past three years.
Morningstar's fund flow data are based on patterns among mutual funds and are therefore not a depiction of institutional investment trends. They do, however sketch a picture of an increasingly challenging market environment
This is also reflected in benchmark indices such as the S&P North America and Europe Clean Energy Index, which has dropped by more than 21% year on year, a much steeper decline than the wider equity market. The S&P Energy Index, which also includes fossil fuel companies, is up 1.8% throughout the same period.
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