US sustainable fund sales were back in positive territory in the third quarter of 2022, with inflows of $459m, following the first quarter of outflows in more than five years.
While a marked difference from the record flows of $21.6bn recorded in the first quarter of 2021, this was still a positive figure when compared with the wider market that saw outflows of $86bn for Q3, according to Morningstar’s global fund sales report published late last week.
Clean energy and clean technology funds were the main beneficiaries, with Invesco Solar ETF, the top-selling strategy, seeing inflows of $223m.
Passive funds were also popular, with sustainable index-based funds raking in $1.5bn – active sustainable lost more than $1bn during the third quarter.
The report noted: “Actively managed sustainable funds have endured a rough 2022, suffering outflows in four out of nine months so far. However, this pales in comparison to non-sustainable active funds, which have lost roughly $67bn each month (on average) so far this year.”
Nonetheless, in terms of product launches, all but one of the 15 new funds brought to market were actively managed. On average over the past three years, active funds have accounted for 73% of US sustainable fund launches, but Q3’s 93% exceeded that trend.
In terms of AUM, Morningstar said the market depreciation and “tepid demand for sustainable funds” drove assets in these funds to $272bn, their lowest point since the first quarter of 2021.
Global
Global sustainable funds attracted $22.5bn of net new money in Q3, less than the revised $33.9bn of inflows in the second quarter.
Meanwhile, global sustainable fund assets slipped to $2.24trn at the end of September, from $2.28trn in June. Morningstar highlighted the 1.6% drop was less pronounced than the 7.5% decline for the broader market.
Product development also slowed in the more challenging market conditions with 148 new sustainable funds being brought to the market globally, with the number being around 240 in the previous quarter.
Hortense Bioy (pictured), global director of sustainability research at Morningstar and member of the ESG Clarity Committee, commented: “Sustainable funds are not immune to the global macro environment. Not only has it been a turbulent year for all investors, but a trying one also for sustainability-focused investors who’ve had to deal with being underweight in fossil fuel companies, greenwashing concerns and growing politicization of ESG in the US. So far this year, flows into sustainable funds have proven more resilient than those into traditional funds. Investors in sustainable strategies tend to focus on the long-term and are less inclined to pull their money out in jittery markets.”
Europe
Passive funds accounted for almost the entirety of flows into European sustainable strategies in the third quarter of 2022, with one iShares strategy netting $5.3bn alone, according to Morningstar.
The European sustainable fund universe attracted $22.6bn in net inflows in the three-month period to end of September, significantly lower than the readjusted $33.4bn net inflows seen in the previous quarter.
However, against a backdrop of continued geopolitical concerns with the Russian invasion of Ukraine, high inflation, interest-rate hikes and a looming global recession, sustainable funds were once again more resilient than the wider market – European conventional funds suffered $124bn of net outflows in comparison.
Passives were the biggest winners in Europe, with almost all – 96% – of the $22.6bn inflows landing in passive strategies. BlackRock’s iShares had four ETFs in the list of top 10 bestselling funds for Q3 with the iShares MSCI USA ESG Enhanced ETF raking in $5.3bn alone. BlackRock took in $7.6bn in ESG fund flows in Q3, followed by DWS and Amundi.
Asia ex-Japan
Excluding China, the Asia ex-Japan region recorded net inflows of nearly $600m into sustainable funds during Q3, a drop from the $1.3bn in net inflows seen in Q2.
Taiwan continued to take the lion’s share of Asia’s flows with $856m over the third quarter. Singapore and Thailand saw negligible inflows while India and Hong Kong saw outflows of $59m and $24m respectively.
However, South Korea saw the largest outflows for the region, at $177m.
Assets were roughly flat at $49bn with equity funds making up the bulk at 60%, while fixed income AUM continued to decline in the region representing just 5.4% of the overall figure at the end of September.
However, Morningstar described product development as “strong” in Q3 with 34 new sustainable fund launches in Asia ex Japan, including 24 in China, six in South Korea, three in Taiwan and one in Malaysia.
