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Inflows to ESG funds smallest since 2018

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Investors pull $19.6 bln from US sustainable funds

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In Europe, 351 fund closures outpace 235 launches

By Virginia Furness

LONDON, Jan 27 (Reuters) - Money flowing into global

sustainable funds shrank by half in 2024 and in Europe closures

of such funds outpaced new launches, as anti-ESG sentiment and

subpar returns dulled the appeal of the investment strategy,

Morningstar Sustainalytics said on Monday.

The funds' best quarter for inflows came at the end of 2024,

the research firm said, with $18.5 billion of inflows largely

going into passive European funds.

But after initial enthusiasm for Environmental, Social and

Governance (ESG,) investment, the bigger picture is that poor

performance, strong EU regulation and an intense anti-ESG

campaign in the U.S. are driving investors and managers away

from the asset class, Morningstar Sustainalytics said.

Inflows to global sustainable funds plunged $36 billion last

year, the lowest since 2018, after ballooning to $645 billion in

2021, shrinking by half while the conventional funds market,

driven by U.S. stocks, enjoyed a boom, the analysts said in a

note.

Last year was a particularly turbulent one for sustainable

funds, the research company said, with high interest rates

hitting clean energy and other green stocks and climate-sceptic

Donald Trump elected as U.S. president.

In his first few days in office, Trump has pushed back

against ESG areas such as diversity and called for unfettered

growth of the U.S. fossil fuel industry. Many ESG portfolios are

underweight in energy stocks because of their emissions profile.

While European sustainable funds still booked inflows,

albeit at a much slower pace than the conventional market, in

the U.S., investors pulled $19.6 billion from sustainable funds

in 2024, with Q4 marking nine consecutive quarters of outflows,

the data shows.

Meanwhile in Europe, regulatory efforts to clamp down on

greenwashing - false claims made about the environmental

benefits of funds or assets - are seeing asset managers shutter

or rename funds or drop ESG mandates.

Some 351 sustainable funds closed or merged in 2024 with an

additional 115 funds dropping ESG related terms. Morningstar ( MORN )

expects between 30% and 50% of ESG funds will rebrand by

mid-2025 due to new fund naming and labelling requirements.

The total number of sustainable funds tracked by Morningstar ( MORN )

in Europe is 5,502 and 621 in the U.S.