ESG funds suffer record outflows

Morningstar analysis of ESG funds shows that as the European Commission closed its consultation on the future of the Sustainable Finance Disclosure Regulation (SFDR) in the final quarter of 2023, Article 8 funds were registering the largest quarterly outflows on record.

Article 8 funds are defined as ‘light green funds’ that promote investments or projects with positive environmental or social qualities, made in enterprises that adhere to sound governance practices.
Investors pulled €26.7bn from such 8 funds over the period, and Article 9 funds – those with a sustainability objective – experienced their very first quarterly outflows, at €4.7bn.

Over the same period Article 6 funds (those with no ESG characteristics) attracted €15.7bn in net new money.

Overall Article 8 funds registered net outflows of €27bn in 2023, while Article 9 funds, those with sustainable investment as their objective (‘dark green’) collected €4.3bn and Article 6 funds garnered €93bn.

A combination of geopolitical events, previous sluggish performance, politicisation, supply chain and financing issues, confusion over the various taxonomies and worries over greenwashing may be reasons that ESG has had a hard time.

Even with the outflows, combined assets in Article 8 and Article 9 funds increased by 1.7 per cent over the fourth quarter to a record €5.2tr and together Article 8 and Article 9 funds saw their market share rise further to almost 60 per cent of the EU universe.

Sources are from Morningstar Direct. Assets as of December 2023. Based on SFDR data collected from prospectuses on 97.8 per cent of funds available for sale in the EU, excluding money market funds, funds of funds, and feeder funds

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