Newspaper icon
The latest issue of Financial Standard now available as an e-newspaper
READ NOW

Investment

Climate funds see first year of outflows

Global climate funds suffered more withdrawals than deposits in 2024, with net outflows reaching US$24 billion, according to fresh data from Morningstar.

In Europe, climate thematic funds experienced the largest outflows of any category during 2024.

In December, Article 9 funds shed €4 billion, marking the 15th consecutive month of net outflows.

Under the EU's Sustainable Finance Disclosure Regulation (SFDR), Article 9 funds are 'dark green' strategies which have sustainable investment as their primary objective.

However, 'light green' Article 8 funds - products that promote environmental or social characteristics - saw net inflows for the eighth month running and best monthly result for four years, drawing in €23.7 billion and bringing the yearly result to €148 billion.

Article 9 saw a negative 6.8% organic growth rate and Article 8 funds saw a positive 2.8% organic growth rate.

US data

Morningstar's data on European asset flows was accompanied by updated data on the US sustainable funds landscape.

The research house found US sustainable open-end funds and ETFs saw the second year of outflows in over a decade, losing US$19.6 billion in 2024 following redemptions of US$13.3 billion in 2023.

By contrast, conventional fund peers saw inflows of $740 billion.

For the first time, the US sustainable funds universe contracted with more funds closing their ESG mandates than new fund launches.

"High interest rates continued to penalise some areas of the market, such as clean energy stocks and other growth stocks," explained Morningstar Sustainalytics sustainable investing research head Hortense Bioy.

The median return for sustainable large-blend equity funds was 20.7% in 2024 - compared to 21.5% for conventional funds and 24.1% for the Morningstar US Market Index.

US sustainable funds were shaken by the political climate, said Bioy.

"In a critical election year, the backlash against environmental, social, and governance investing intensified, and political scrutiny reached new heights," Bioy noted.

"Some individual states took legal action to limit the incorporation of ESG criteria in investment decisions.

"Greenwashing concerns remained a persistent concern for investors."

Read more: MorningstarHortense BioyMorningstar SustainalyticsSustainable Finance Disclosure Regulation