Sustainable fund flows rebound in Q1

U.S. investors remain sour on sustainable investment funds, but Canadian investors boosted their holdings in the first quarter, finds Morningstar Inc.

The research firm said in a report that sustainable funds generated $900 million in net new money in the first three months of 2024 — reversing $88 million in outflows for the previous quarter. (All figures in U.S. dollars; the $88 million was restated from the previously reported $2.5 billion.)

The U.S. market suffered record quarterly outflows of $8.8 billion, which was the sixth straight quarter of negative net flow activity, Morningstar reported.

“Although the motivations behind outflows cannot be perfectly quantified, many factors are in play. These include high interest rates, middling returns in 2023, greenwashing concerns and the continued politicization of ESG investing,” the report said.

This record outflow from U.S. funds was offset by European funds, which generated $11 billion of net flows in the first quarter — more than double the total from the fourth quarter of 2023.

Canada also enjoyed a rebound in net flows, with sustainable funds attracting $188 million in new money.

“[T]his represents a 224% increase from the previous quarter, although flows were still down about 80% from the same period last year,” Morningstar said. “Passive strategies represented the majority of the inflows this quarter,” with most of the net flows going into fixed-income funds.

While global net flows were still modest, market gains boosted assets in sustainable funds by 1.8% to $3 trillion. The boost came mostly from asset growth among European passive strategies, the report said.

Canadian sustainable fund assets grew by 7.8% in the first quarter to roughly $34 billion.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.