ESG and sustainable fund flows improve in Q3
Investors in Australia and New Zealand allocated US$640 million to sustainable funds in the third quarter of 2024, reversing outflows of US$555 million in the previous quarter, according to Morningstar.
The research house’s quarterly ESG fund flows report found flows into sustainable active strategies gained US$267 million ($402 million), while sustainable passive funds gained US$373 million.
Looking at asset classes, sustainable equity strategies gained US$570 million and fixed income received US$125 million. This is positive compared to Q2 when equity funds saw outflows of US$670 million.
This brings the Australasian sustainable open-ended and ETF fund assets under management to US$34 billion, which Morningstar said is 10 per cent higher than the previous quarter.
Morningstar said the improved flows in sustainability options mirrored the trend in the broader fund space. Overall fund flows during the quarter were net inflows of US$9.5 billion, with passive receiving US$6.7 billion and active seeing inflows of US$2.8 billion.
Dimensional Fund Advisors remains the largest provider with a 14.6 per cent market share, followed by ETF provider Betashares with a 11.9 per cent share. In third place is Vanguard Investments Australia which has an 8.9 per cent market share, unchanged from Q2.
The top 10 providers accounted for almost two-thirds of sustainable fund assets.
Only two new sustainable funds were launched during the quarter which were Altor Social Infrastructure and Macquarie Energy Transition Infrastructure, half the volume launched in the previous quarter.
A total of nine funds have been launched since the start of the year, with all of these being active fund launches.
Morningstar said the volume of launches is “significantly lower” than in previous years, exacerbated by nine funds which have closed due to limited demand or underperformance.
“Interest-rate regime changes in 2022 have put active asset managers under profit-margin pressures caused by rising cost bases and limited revenue growth. Limited demand and underperformance in sustainable strategies have been key drivers behind the closure decisions.”
Earlier this month, Money Management covered whether sustainable funds are losing traction in Australia as fund managers become concerned about greenwashing and existing funds suffer outflows.
Dugald Higgins, head of responsible investment and sustainability at Zenith Investment Partners, said: “Markets (and managers) hate uncertainty. Challenges like evolving disclosure frameworks, greenwash regulations and geopolitical issues make attaining sufficient clarity difficult. Many firms are hesitant to take a strong stance on products until they understand what a ‘new normal’ looks like.”
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Laura Dew
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