LONDON (Reuters) – The European sustainable fund industry suffered another quarter of outflows in the three months to end-September as investors worried about economic uncertainty and regulatory changes, data provider Morningstar said in a report published Wednesday.
Investors pulled 20.5 billion euros ($21.7 billion) from funds in the European Union’s lower sustainability classification, while net inflows into the higher classification were their lowest since early 2021, the Morningstar report said.
Investment funds not marketed as sustainable, by contrast, gathered 17.8 billion euros in inflows in the third quarter, although that was down from the previous three months.
Funds which incorporate environmental, social and governance (ESG) goals into their mandates, which can range from basic exclusion of certain stocks to only investing in climate technology shares, have had a tough time since a 2021 boom, pressured by better returns elsewhere and regulatory shifts.
In Europe, the introduction of the Sustainable Finance Disclosure Regulation (SFDR), which aims to tackle misleading claims from fund houses over their sustainability efforts, has led managers to downgrade hundreds of their funds to a lower sustainability category.
Morningstar said 60% of the redemptions in the third quarter disproportionately affected funds classified as ‘Article 8’ under SFDR and which had “no commitment to sustainable investments”.
Funds in the highest sustainability bucket, known as Article 9, saw inflows of 1.4 billion against 3.7 billion in the second quarter and marking the weakest inflows since SFDR’s introduction in March 2021.
U.S sustainability funds are also struggling. Morningstar data on Tuesday showed managers closing funds faster than they opened new ones in the third quarter. Investors exited U.S. funds in general in the period but sustainable funds fared worse, registering their fourth consecutive quarter of outflows.
In Europe, ESG funds launches totalled 126 in the third quarter, down 31% from the second quarter, Morningstar said.
($1 = 0.9442 euros)
(Reporting by Tommy Reggiori Wilkes; editing by David Evans)
