Sustainable fund flows drop sharply, but stay positive in Q2

Global sustainable funds saw net new deposits plummet last quarter as concerns about a looming recession weighed on investors, but they held up better than their traditional peers, a new report from researcher Morningstar Inc, (MORN.O) showed on Thursday.

Sustainable mutual funds and ETFs gathered $32.6 billion of net new money globally in the quarter ended June 30, a 62% drop from their first quarter inflows, according to Morningstar’s latest figures.

The broader fund market suffered net withdrawals of $280 billion over the same period, after enjoying net inflows of $141 billion in the first quarter.

Morningstar’s report covers 6,709 sustainable funds across North America, Europe and Asia-Pacific, including those which say they focus on environmental, social and governance (ESG) factors.

The relative resilience of sustainable fund flows compared to the broader market may reflect the fact that ESG investors are slower to pull money from investments they believe align with their values, according to the report.

“It adds an additional dimension of personalization, which could contribute to stronger conviction and patience, even when markets might be unfavorable,” said Alyssa Stankiewicz, Morningstar’s associate director of sustainability research.

Despite the net new deposits into sustainable funds in the second quarter, market depreciation drove total assets down to $2.47 trillion as of June, a 13.3% decrease from the prior quarter but better than the 14.6% decline for all funds.

Flows also varied widely across regions, with European-domiciled funds attracting $30.7 billion in net inflows while U.S. sustainable funds shed $1.6 billion, their first quarter of outflows in more than five years, Morningstar said.

The slowdown did not stop investment firms from launching new funds, however. An estimated 245 new sustainable funds hit the shelves globally, roughly in line with the 242 launched in the first quarter, according to Morningstar.