The global universe of sustainable open-end and exchange-traded funds attracted about $10.4 billion in net new money during the third quarter of 2024, marking a $4.1 billion increase from Q2, according to Morningstar Sustainalytics’ Global Sustainable Fund Flows report.
European sustainable funds were the biggest contributors, attracting almost $10.3 billion, though this represented a slight decrease from the $11.1 billion recorded in Q2. In contrast, the US market saw redemptions amounting to $2.3 billion, which, while negative, was an improvement from the $4.7 billion outflow in the previous quarter. Meanwhile, Japan saw reduced outflows, and sustainable funds across the rest of Asia continued to gain new money.
At the end of September 2024, global sustainable fund assets grew by 6% to nearly $3.3 trillion, supported by market appreciation. However, new fund launches continued to slow, with only 57 sustainable funds introduced in Q3, reflecting a broader normalisation of product development activity in the sustainable finance space.
Carbon footprints of European fund portfolios revealed
Europe also saw significant consolidation, with 102 sustainable funds closing or merging in Q3, bringing the year-to-date total to 349. Additionally, 113 products were rebranded, with 50 dropping ESG-related terms. In the US, 12 sustainable funds were liquidated, marking the fifth consecutive quarter in which closures outpaced launches.
Looking ahead, Morningstar Sustainalytics expects further changes in the sustainable funds landscape as new anti-greenwashing regulations take effect in the coming months. According to the analysts, this could reshape the sector, driving both fund consolidation and more stringent product classifications.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, said: “The global flow picture for ESG funds is improving, but it hides nuances across geographies. Redemptions are declining in the US, Canada and Japan, which can be seen as a positive development. However, net inflows into ESG funds aren’t increasing in Europe, the leading market. This can be attributed to several factors, including a contraction of the universe in terms of number of funds. So far this year, around 350 sustainable products have been liquidated or merged. Another factor is the uncertainty around anti-greenwashing rules and their impact on existing and future ESG strategies.”
