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Q4 Global Sustainable Fund Flows Demonstrate Resilience

Despite pressures caused by inflation, interest rates and recession fears, global sustainable fund flows proved resilient in Q4 2022, attracting US$37 billion of net new money. The report by research and data provider Morningstar noted that, while Q4 global sustainable fund inflows were 50% higher than Q3 (US$24.5 billion), reaching US$2.5 trillion in assets by the end of December, the broader market experienced US$200 billion of net withdrawals. “The rebound in global inflows into sustainable funds was driven by Europe, where investor appetite remains strong and supported by a favourable regulatory environment,” said Hortense Bioy, Global Director of Sustainability Research at Morningstar. “The US ESG fund market, however, faced headwinds: macroeconomic of course, but also political, with prominent politicians speaking and acting against ESG investing.” A separate Morningstar report also took stock of the Q4 performance of Article 8 and 9 funds under the EU’s Sustainable Finance Disclosure Regulation (SFDR). Ahead of SFDR Level 2 going live in January 2023, Q4 2022 saw many asset managers reviewing their fund classifications and downgrading Article 9 to 8, the report said, noting 420 products changed their SFDR status since September – 308 of which were Article 9 funds re-labelled as Article 8. “We expect the recent wave of Article 9 fund downgrades to continue, raising questions about what will remain and how useful that category will be,” Bioy said. “Investors will increasingly look beyond Article 8 and Article 9 and focus instead on the level of exposure to sustainable investments, which cut across both classifications.” 

 

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