ESG funds see first ever global net outflows

ESG funds see first ever global net outflows
US investors pulled $5.1 billion from sustainable funds in Q4 2023.
JAN 25, 2024
By  Bloomberg

For the first time ever, ESG funds saw global net outflows amid a major exodus by US investors from environmental, social and governance strategies.

US fund clients withdrew a net $5.1 billion in the final three months of 2023, according to a fresh analysis by Morningstar Inc. published on Thursday. Combined with $1.2 billion in outflows in Japan, that was too severe a retreat for Europe’s $3.3 billion of net inflows to bolster the global market. 

In all, the global sustainable fund market experienced net redemptions of $2.5 billion in the fourth quarter, marking an historic low point for the industry. US skepticism toward ESG follows years of attacks by Republicans, with legislators in New Hampshire even seeking to criminalize the practice. At the same time, investors have started to question the strategy’s staying power, after an extended period of poor financial returns.

The retreat from ESG also lies in the failure of actively managed strategies to draw in clients, according to Morningstar’s analysis. Even in Europe, fund flows were buoyed by $21.3 billion of allocations into passive strategies, while actively managed funds lost almost $18 billion. 

The “disappointing reality is that active managers failed again to prevent redemptions in a corner of the market where it’s easier for them to prove their worth,” Hortense Bioy, global director of sustainability research at Morningstar, said in the report. “By contrast, passive funds demonstrated consistent resilience.”

The outlook is far from hopeless, though, according to Bioy.

“The global ESG fund flow picture in the last quarter may look bleak, but ESG funds in Europe – by far the largest market - continued to hold up better than the rest of the fund universe,” she said. She also noted that the value of global ESG fund assets continued to rise, gaining 8% to $3 trillion in total.

The retreat from ESG unfolded as “the broader market of open-end funds and exchange-traded funds also suffered redemptions against a continuously challenging macroeconomic and geopolitical backdrop,” Morningstar said.

Latest News

Citarell to spearhead Northeast sales growth for Easterly
Citarell to spearhead Northeast sales growth for Easterly

John Hancock veteran has more than 30 years of industry experience.

Hightower Advisors chief Oros to step down, Goldman Sachs 'lifer' is replacement
Hightower Advisors chief Oros to step down, Goldman Sachs 'lifer' is replacement

New leader takes over a firm that has seen remarkable transformation.

Why aren't investors celebrating stellar US earnings season?
Why aren't investors celebrating stellar US earnings season?

Tariffs, rates are overshadowing what should be a positive period.

Gold declines for second day following comments from Fed’s Powell
Gold declines for second day following comments from Fed’s Powell

Record rally for bullion is on hold for now as investors weigh outlook.

BlackRock hopes to end dispute with FDIC over bank stakes
BlackRock hopes to end dispute with FDIC over bank stakes

The deadline for an agreement has already been extended twice.

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.