In the US, there was a record $8.8 billion in net withdrawals during Q1, the first three months of 2024. The reasons given for this huge amount was a combination of high interest rates, greenwashing concerns and the increasing policies surrounding ESG-focused investments.
Worst Quarter Ever for US
During the first quarter of 2024, global sustainable funds netted close to $900 million of inflows. This is a big jump from the fourth quarter of 2023 which showed a small outflow of 88 million. It is possible that this discrepancy indicates renewed investor interest in sustainable investing.
That said, at the same time, US investors pulled a record $8.8 billion from funds that focus on sustainable impact. This is the “worst ever quarter” for the US market, and can be attributed to a drop in investor confidence due to political and market volatility.
In the US, a high concentration of assets was found in a small number of funds. In particular, ETFs (Exchange-traded funds) experienced significant withdrawals. This heavily impacted the overall figures for the region.
How Does the US Compare to Europe?
On the other side of the pond, European sustainable funds nearly doubled from the prior quarter, registering $10.9 billion of net deposits. In terms of global sustainable fund assets – close to $3 trillion – Europe accounted for over 80%.
However, it is worth keeping in mind that European fund inflows were still relatively weak compared to other periods in recent years. Morningstar attributes this to a combination of inflation and recession concerns in some European countries.
There are key differences between the US and Europe when it comes to sustainability. European politicians and consumers have embraced sustainable change, supporting both greener products as well as regulation supporting climate change mitigation. However, US Republican politicians have demonstrated pushback against ESG regulations on multiple occasions. It may be no coincidence that many of these politicians hail from energy-producing states.
ESG Funds Going Forward
ESG has been a hot topic in recent years, with investment companies developing new fund portfolios to satiate increased demand. Yet, it seems that some investors are approaching ESG with more caution. Despite the enthusiasm for ESG funds, there has been an underperformance of ESG and sustainability strategies in the last couple of years which could explain some investor skepticism.
