Sustainable Fund Closures Outpace Launches in the US, Morningstar Reports
Decline in Investor Interest for Sustainability-Focused Funds in the US
Money managers in the United States have witnessed a decline in investor appetite for sustainability-focused funds, leading to more fund closures than launches in the past three months, according to data firm Morningstar. The popularity of investment products aimed at promoting ethical practices, such as reducing greenhouse gas emissions and promoting workplace diversity, has waned since a boom in 2021. Regulators scrutinizing marketing practices and allegations from Republican politicians of industry boycotts have contributed to this decline.
A Shift in Sustainable Fund Dynamics
For the first time in recent history, sustainable fund departures have exceeded arrivals, with thirteen funds closing and only three new funds launched in the past quarter. Additionally, one existing fund adopted the “sustainable” label, while four other funds moved away from sustainability mandates. Morningstar’s definition includes open-ended and exchange-traded vehicles with a clear commitment to sustainability, impact, or environmental, social, and governance (ESG) factors.
Continued Outflows for Sustainable Funds
While investors withdrew money from U.S. funds in general during this period, sustainable funds experienced a greater decline compared to conventional peers. This marks the fourth consecutive quarter of outflows for sustainable funds, contracting by 0.85% compared to 0.02% for the overall fund universe. In contrast, more conventional funds were launched than closed in the third quarter.
Factors Influencing Outflows
Multiple factors contribute to the outflows from sustainable funds, including rising energy prices, concerns about greenwashing, high interest rates, and political backlash. Alyssa Stankiewicz, a researcher at Morningstar, emphasizes that the motivations behind these outflows cannot be precisely quantified.
Conclusion
The recent decline in investor interest for sustainability-focused funds in the United States has resulted in a higher number of fund closures than launches. The regulatory scrutiny and allegations surrounding these funds have contributed to their diminishing popularity. However, the dynamics of the sustainable fund landscape continue to evolve, with some funds adopting sustainability labels and others moving away from such mandates. It remains to be seen how these trends will shape the future of sustainable investing in the US.
