Poor returns prompted investors to withdraw record amount of money from the EU’s funds with the strictest ESG standards, a report by market research firm Morningstar has shown.
The EU’s Sustainable Finance Disclosure Regulation (SFDR), adopted in 2021, regulates and classifies funds according to their sustainability. The so-called Article 8 funds are registered as “promoting” ESG goals, while the “greenest” funds, the Article 9 products, are those funds that have sustainable investment as their objective.
In the final quarter of 2024, Article 9 funds saw withdrawals of $7.6 billion (7.3 billion euros)—a record high for any quarter and more than double the outflows in the third quarter, according to Morningstar’s research cited by Bloomberg.
These types of ESG funds saw in the fourth quarter the fifth consecutive quarter of net outflows, the data showed.
The outflows were attributed to the lower returns compared to conventional investment strategies.
“In 2024’s bull market, investors simply preferred conventional equity strategies,” Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, told Bloomberg.
Globally, sustainable open-end and exchange-traded funds (ETFs) saw their highest quarterly inflows in the fourth quarter of 2024, Morningstar said in a report. The inflows into these funds reached $16 billion in the last quarter of 2024, up from $9.2 billion in the third quarter. However, annual inflows halved, contrasting with a booming market, Morningstar noted.
In the United States, sustainable open-end funds and ETFs suffered their second year of outflows in more than a decade, reaching $19.6 billion in 2024 following redemptions of $13.3 billion in 2023, according to Morningstar data.
By contrast, conventional fund peers enjoyed significant inflows of about $740 billion, supported by expectations of interest rate cuts and an AI-related stock rally.
U.S. sustainable funds were hit by poor returns and the growing backlash and political scrutiny against ESG investing, Morningstar said.
By Tsvetana Paraskova for Oilprice.com
