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ESG and sustainable funds last year saw global outflows of around £2bn (€2.3bn) in the final quarter of 2023, with net inflows falling into negative territory for the first time.
This highlights a shift in investor mood on ESG, according to Morningstar’s latest Global ESG Flows Report.
Investor interest in ESG appears to be waning amid a continuing challenging macroeconomic and geopolitical backdrop. Despite this, the Global Sustainable Fund still managed to attract £49bn in 2023.
But all is not lost, according to one Morningstar president.
“Although global ESG fund flows may look bleak last quarter, European ESG funds, by far the largest market, continued to outperform other funds. Global ESG fund assets also Hortense Bioy, Global Director of Sustainability Research at Morningstar, said.
Her comments come as investors withdrew a record £3.9bn from US sustainable funds last quarter, with a total of £10bn by 2023, according to the report.
“The unfortunate reality is that active managers have been unable to prevent redemptions in the corner of the market where it is easier to prove their worth,” Bioy observed.
Turning to Europe again, sustainable funds held up better than the broader market, attracting net new capital of £2.3bn in the fourth quarter, thanks to passive funds which attracted £16.3bn. However, actively managed sustainable funds drained nearly £14bn.
various economic backgrounds
Global sustainable fund assets rose 8.2% to £2.3bn at the end of the fourth quarter, from an adjusted value of £2tn three months ago, in a mixed macroeconomic background. These include the end of the rate hike cycle, the artificial intelligence (AI) boom, and growing concerns about geopolitical risks and recession in some major global economies.
Despite the AI boom and technology recovery (driven largely by the achievements of the Magnificent 7), how the fate of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla will change the world It refers to whether it had an essential influence on both. US and world stock markets. Performance of sustainable funds was mixed.
That’s according to another Morningstar report written by Robert Edwards, Morningstar’s Director of Product Management, EMEA and ESG Indices.
If less carbon-intensive sectors such as technology and communications services outperform, market trends will typically be more favorable to investments centered on ESG factors.
However, according to Edwards, global stock market returns in 2023 were concentrated at the top, and many stocks missed out on certain members of the Magnificent Seven, leading to disparate performance in sustainability indexes. That’s what it means.
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