Europe’s Sustainable Fund Flows Grow as U.S. ESG Market Shrinks

Investor appetite for ESG funds and other sustainable investments remains steady in Europe, in stark contrast with the United States, where the ESG backlash has had investors pull billions of U.S. dollars out of sustainable funds over the past year.   

Europe has higher political and investor support for ESG investment products, a Reuters analysis shows, which has helped the continent to stay ahead of the U.S. in terms of sustainable investment flows. 

Global ESG funds, or funds that use environmental, social, and governance approaches, saw net quarterly outflows for the first time on record in the fourth quarter of 2023, Morningstar data showed in February.

Sustainable funds in Europe attracted inflows in Q4, but investors pulled $5 billion from U.S. sustainable funds in the last quarter of 2023, for a total of $13 billion over 2023, according to the data.

In Europe, sustainable funds performed better than the broader market and attracted $3.3 billion of net new money in the fourth quarter, thanks to passive funds which collected $21.3 billion, Morningstar said.

Europe remained the world’s biggest market for sustainable funds, but the fourth-quarter fund inflows were much lower than the revised $11.8 billion inflows in the previous quarter, per the data.

Meanwhile, outflows from U.S. sustainable funds jumped to $5.1 billion in the fourth quarter, nearly double the restated $2.7 billion outflows in the third quarter.

In the United States, “investors continued their flight from sustainable funds in 2023's fourth quarter,” according to Morningstar’s analysis.  

“U.S. sustainable funds suffered their first calendar year of outflows since Morningstar began keeping track more than 10 years ago, making 2023 their worst calendar year on record,” Morningstar said.

Globally, investments in clean energy funds fell in the first quarter of 2024, also due to uncertainty about the pace of America’s renewable energy growth with the U.S. presidential election approaching.

Exchange traded funds that invest in stocks of renewable energy firms saw a combined outflow of $4.8 billion during the first quarter, according to LSEG Lipper data cited by Reuters.  

By Charles Kennedy for Oilprice.com

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