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Fund Solutions

US and Europe Diverge on ESG Fund Flows

European inflows to ESG funds hit US$11 billion in the first quarter of 2024, as outflows in the US reached US$8.8 billion, demonstrating a widening gap between the two jurisdictions. New research by the Institute of Energy Economics and Financial Analysis (IEEFA) suggested the “anti-woke” backlash in the US has led to money outflow from ESG funds. In contrast, expanding green requirements in Europe and parts of Asia, combined with growing appetite from asset owners, has kept demand for sustainable funds strong in those jurisdictions. The report also found that ESG funds outperformed non-ESG investments in both equities and fixed income by an average of four percentage points. “Sustainable funds generated better returns than traditional funds in 2023, with a median return of 12.6% versus 8.6%,” said Ramnath N Iyer, the report’s author and Sustainable Finance Lead for Asia at the IEEFA. “This outperformance was extended across both equity and fixed-income fund asset classes.” In the US, the ESG sector has been harmed by “sustained attacks” from the conservative side of politics, leading companies to “quietly” remove mentions of ESG from their materials. Meanwhile, financial firms under threat of boycotts and legal challenges in some states have stepped back from offering or advertising ESG funds altogether.

 

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