Sustainable Investments: Why They're Losing Their Shine

A global decrease

The current macroeconomic and geopolitical context, marked by constant complications, has generated a negative dynamic for ESG funds. According to the Global Sustainable Fund Flows report by Morningstar, despite the $63 billion collected during the year 2023, these funds saw net capital outflows for the first time in the fourth quarter of 2023.
Investors withdrew $2.5 billion, thus following the trend of the global market of open funds and ETFs which also experienced redemptions.

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Sustainable funds in Europe, an exception

In Europe, sustainable funds have nonetheless managed to withstand the wave. This is largely due to passive funds which have received net flows of $21.3 billion. Even though, at the same time, actively managed supports suffered significant losses, estimated at almost $18 billion.
Thus, for the whole of 2023, European sustainable funds collected $76 billion while all regional funds recorded an annual outflow of $50 billion.

Sustainable funds in the US, a worrying setback

The last quarter of 2023 was marked by substantial withdrawals from American sustainable funds, reaching the record amount of 5 billion dollars. The total withdrawals for the year 2023 amount to 13 billion.

Despite the negative figures, the assets of global sustainable funds increased by 8% during the last quarter to reach nearly 3,000 billion dollars at the end of December. 120 new supports were launched, just in the last quarter.

According to Hortense Bioy, director of sustainable investment research at Morningstar, despite the notable redemptions, the overall picture is not so gloomy. She particularly points out the good resilience of ESG funds in Europe. The assets of global ESG funds have also continued to increase. The disappointment comes from active managers who, despite the ease of proving their value in this market segment, failed to prevent redemptions. Passive funds, on the other hand, have demonstrated a consistency in resilience.

These findings come in a context where ESG investments are attracting more and more attention, both from investors and regulation. The challenge now lies in adapting the market to this new environment.