Some 115 funds dropped ESG-related terms from their names in 2024 as the industry grappled to comply with the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR), according to Morningstar’s Q4 Global Sustainable Fund Flows report.
A further 48 swapped ESG-related terms, with another 50 adding ESG-related terms to their branding.
The deadline for funds to readjust their marketing in line with SDR may have passed on 2 December last year, but analysts at Morningstar “expect an acceleration of rebranding activity in the coming months” as more funds seek to comply with the European Securities and Markets Authority’s (ESMA) naming guidelines on 21 May.
The report also anticipates that 30% to 50% of European ESG funds will change their names by mid-2025, with 4,700 funds falling within the scope of the ESMA guidelines.
In terms of fund flows for Q4 2024, European sustainable funds garnered $18.5bn, more than double the restated $8.9bn in the previous quarter. However, in the US, redemptions from sustainable funds slid further to $4.3bn compared with the $2bn outflow registered in the third quarter. Outflows in Japan deepened, too, while sustainable funds in the rest of Asia continued to attract new money, hitting $2.7bn.
Overall, inflows into global sustainable funds hit a low of $36bn in 2024 – a far cry from the $645bn raised at their peak in 2021.
“Global sustainable funds ended 2024 on a high note, achieving their strongest quarterly inflows of the year. Europe, again, was the driving force. This fresh flow of capital, however, shouldn’t hide another reality. Over the full year 2024, global ESG funds recorded their lowest inflows since 2018, while the rest of the market enjoyed a boom,” explained Morningstar’s head of sustainable investing research, Hortense Bioy.
Bioy further warned the sector faces many more changes in the year ahead. “2025 might be a reset year, with anti-greenwashing rules reshaping the ESG fund market, companies re-affirming or rolling back their sustainability initiatives, and governments reviewing their priorities amid a changing geopolitical and economic landscape. These are new developments that sustainability-focused investors will have to navigate.”
This article first appeared on PA Future’s sister site Portfolio Adviser
