Global sustainable funds witnessed a net outflow of US$2.5 billion for the first time in the fourth quarter of 2023, finds a recent Morningstar report.
The net outflow in Q4 2023, according to Morningstar’s data, was driven by US, Japanese and Canadian investors, who pulled out US$6.5 billion in aggregate from sustainable-labelled mutual, open-end and exchange-traded funds.
On the other hand, inflows to sustainable funds mainly came from European and Australian-New Zealand investors, who put in US$3.3 billion and US$0.6 billion, respectively. Finally, Asia ex-Japan investors put in an additional US$0.1 billion.
The negative net flow reflects investors’ pessimistic sentiment with regard to prevalent macroeconomic and geopolitical challenges, which took a toll not only on sustainable funds, but also on conventional mutual and exchange-traded funds, which experienced an outflow of US$17 billion over the same period.
Despite sizable redemptions, sustainable fund issuance’s assets under management (AUM) remain robust. Morningstar estimates there were 121 new launches of sustainable funds globally in Q4 2023, a slight increase from 114 in the previous quarter.
This, in turn, pushed sustainable fund AUM to a new height, reaching nearly US$3 trillion globally, equivalent to an 8.2% quarter-on-quarter growth. BlackRock, UBS and Amundi are the top three asset managers whose AUM in the sustainable funds add up to US$643.7 billion.
Divergent Asia
Within the Asian market there were divergent attitudes with regard to sustainable funds. Japanese investors showed weak interest as the country’s sustainable fund flow, which has turned negative since Q3 2022, showed no sign of a rebound in Q4 2023. In addition, Japan’s sustainable funds displayed a net outflow of US$8.3 billion throughout 2023.
In contrast, the pool of the entire Japanese fund market moved in the opposite direction and grew by US$65 billion during the same period. Moreover, new launches of sustainable funds in the Japanese market have been decreasing over the year, and there were no new launches in Q4 2023.
For other markets in Asia, however, the sustainable fund market is still afloat, with inflow growing in Q4 2023 by US$0.1 billion, and AUM increasing 5% quarter-on-quarter to US$61 billion. China-domiciled sustainable funds saw the largest amount of withdrawal, US$1.3 billion, whereas Taiwan-domiciled funds had the highest inflow of US$1.4 billion. The same trend can be found on the AUM side, where Taiwan’s asset size grew by roughly 50% in 2023 and accounted for 22% of the region’s assets.
In terms of the new launches, the region had 29 sustainable funds on the table in Q4 2023, and Thailand was the outperformer with 22 of them. This issuance activity was the result of a tax incentive measure approved by Thailand’s cabinet in November, under which investors who purchase Thailand-domiciled sustainable funds were eligible to receive tax deductions and exemptions if they held their investment for at least eight years.
Going into 2024, the sustainable fund market still has a positive outlook. Another report by Morgan Stanley shows that 77% of individual investors globally have an interest in investing in sustainable funds and companies committed to environmental, social and governance issues. Climate action, healthcare and circular economy are the top three themes investors are looking into.
