Europe continues to dominate the global sustainable finance sector, holding 85% of sustainable fund net assets, which reached €2.2 trillion in 2023, according to the Association of the Luxembourg Fund Industry (Alfi).
Despite economic challenges, sustainable funds grew 20.2% last year, outpacing conventional funds, which expanded by 16.9%, according to Alfi, the face and voice of the Luxembourg asset management and investment fund community. Sustainable investments now account for 19% of the European fund market, up from just 6% in 2019.
Luxembourg remains a key hub for sustainable investing, according to the researchers, hosting 34% of total assets. Passive investment strategies gained traction, according to Alfi, with their market share growing from 21% in 2021 to 29% in 2023, outpacing active strategies which grew at a slower rate of 14%.
New sustainable fund launches slowed in 2023 though, with 350 new funds introduced, a drop from 616 in 2022 and 760 in 2021. The reclassification of funds was almost neutral, with 251 funds being upgraded to sustainable status while 237 were reclassified as conventional funds.
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The average size of sustainable funds has also grown, reaching €416 million, compared to €370 million for conventional funds. According to the report, larger fund sizes allow managers to leverage economies of scale and improve operational efficiency.
Market concentration remains high, with the top five investment managers controlling 26% of sustainable fund assets, compared to 21% in the conventional funds market. This trend is even more pronounced in Ireland, according to Alfi, where the top five investment managers of passive funds manage 75% of net assets.
Despite a 31% CAGR since 2019, impact funds accounted for just 18% of net assets in 2023, down from 27% in 2021, reflecting weaker demand.
Article 8 funds continued to dominate, making up 58% of sustainable fund classifications, while Article 9 funds account for 4%. Sustainable ETFs, for the first time, have gained a slightly larger market share than conventional ETFs, holding 15% versus 14% of assets.
The third edition of the European Sustainable Investment Funds Study, produced in partnership with data provider Morningstar and Swiss impact investing specialist Tameo, analysed the current state of sustainable investing in Europe, covering recent trends and regulatory developments.
Britta Borneff, chief marketing officer at Alfi, said: “Europe continues to lead the global sustainable investment fund market, driven by a robust regulatory framework, including the SFDR, and strong investor demand. The study highlights both the growth and resilience of Europe’s sustainable investment funds. We hope these insights support decision-making, drive progress in sustainable finance, and help build a more sustainable and equitable future.”
Anne Estoppey, research analyst, Tameo, added: “The dynamic landscape of sustainable finance calls for continuous insights to sustain its remarkable growth. The study provides an essential state-of-the-market analysis, tracking key trends, comparing sustainable fund strategies to conventional ones, and delivering data-driven intelligence for investors, policymakers, and stakeholders.”
