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Outflows Were Rampant in the Second Quarter — But Global Sustainable Funds Still Pulled In Money

Inflationary pressures, rising interest rates, a global energy crisis, and a looming recession didn’t stop investors from committing net new capital to sustainable strategies.

As investors fled the broader markets, sustainable funds continued to attract new capital.

Morningstar reported Thursday that global sustainable funds — included open-ended and exchange-traded funds that are marketed as having a focus on sustainability, impact, or environmental, social, and governance factors — brought in $32.6 billion in net new money in the second quarter. This occurred as the broader global fund market experienced experienced $280 billion in net outflows amid investor concerns about market volatility, inflation, a possible recession, and geopolitical conflicts.

“Macroeconomic headwinds, including inflationary pressures, rising interest rates, a global energy crisis, and a looming global recession became more acute in the second quarter, spelling trouble for global fund markets,” Morningstar said in the report.

Despite outperforming the broader market, global sustainable fund flows still slowed dramatically, declining 62 percent from the first quarter’s $87 billion in inflows. Global assets under management also dropped for sustainable funds amid broad market losses, falling 13.1 percent over the second quarter to $24.7 trillion, marking the largest three-month decline since the first quarter of 2020. 

But once again, global sustainable funds still fared better than the broader global fund market, which experienced a 14.6 percent decline in assets under management in the second quarter. 

Looking at the U.S., it’s a similar story: The U.S. sustainable funds market saw $1.6 billion in outflows in the second quarter, compared to $150 billion in outflows from the total U.S. fund market.

Many of the sustainable fund redemptions came out of equity sector funds, including clean energy and tech climate strategies.  

“Against the backdrop of the ongoing volatility in energy markets and record high gasoline prices in the US, investors shied away from downtrodden renewable energy funds,” the report said. “This was compounded by rising commodities prices, since energy stocks (especially oil and gas) are often used as a hedge against inflation.”

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