The global sustainable fund market saw a resurgence in the second quarter of 2024, with $4.3 billion in net inflows, a stark contrast to the $2.9 billion in outflows recorded in the first quarter. This shift indicates a renewed investor interest in sustainable funds, including both open-end funds and ETFs.
“The outlook for global ESG fund flows is beginning to improve,” stated Hortense Bioy, Head of Sustainability Research at Morningstar Sustainalytics. “We started the year with outflows, but there has been a noticeable turnaround, with capital returning to the sector. European ESG funds, in particular, have attracted over $20 billion so far this year. Meanwhile, in the U.S., while investor interest remains modest, outflows have been smaller than in the previous two quarters.”
The report highlights that the organic growth rate of the global sustainable fund universe, which measures net flows relative to total assets at the start of the period, was 0.14% in Q2, up from 0.01% in the previous quarter. Despite this improvement, sustainable funds still trailed behind the broader fund market, which saw $200 billion in inflows and an organic growth rate of 0.4%.
For context, the Morningstar Global Markets Index posted a 2.6% gain in the second quarter, while the Morningstar Global Core Bond Index saw a 1.2% decline. Europe continues to dominate the sustainable fund landscape, accounting for 84% of global assets in this category. The United States remains the second-largest market, with $336 billion in assets, representing 11% of the global total, consistent with the distribution three months prior.
European sustainable funds were particularly strong, garnering $11.8 billion in Q2, up from $8.4 billion in the previous quarter. The report also noted a slowdown in outflows from Japan and continued positive net flows into sustainable funds across Asia.
However, the pace of new sustainable fund launches has slowed, with only 77 new products introduced in Q2 2024. This decline reflects a normalization in product development activity after three years of rapid growth, during which asset managers expanded their sustainable fund offerings to meet rising investor demand.
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