Sustainable Fund Inflows Fell Sharply in Q1: Morningstar

What You Need to Know

They fell 37% globally and 26% in the U.S.
Flows into the broader market fell even more.

Net inflows into global sustainable funds plummeted 35.7% in the first quarter relative to the previous quarter, Morningstar reported Tuesday.

This was the sharpest quarterly slowdown in these funds’ net inflows over the last three years, and worse than the 33% drop in the 2020 first quarter, at the outset of the pandemic.

However, sustainable funds held up better in the first quarter than their conventional peers, which experienced a 73% inflows slump.

In the U.S., sustainable fund inflows slowed by 26% quarter over quarter, while flows into the broader U.S. market dipped by 65%.

Amid a broad market slowdown, global sustainable fund assets contracted to $2.8 trillion as of March from the restated $2.9 trillion at the end of 2021, their first dip since the first quarter of 2020, according to Morningstar. Year on year, however, the global sustainable fund universe expanded by 38%. 

Assets in U.S. sustainable funds declined during the broader U.S. market slowdown, amounting to $343 billion at the end of the first quarter, down 4% from the all-time record of $357 billion at the end of 2021. For perspective, assets in the overall U.S. market fell by 6% over the quarter to $26.5 trillion.

The global sustainable fund universe comprises open-end and exchange-traded funds that, by prospectus or other regulatory filings, claim to focus on sustainability, impact or environmental, social and governance factors.

Morningstar divides the global universe into three segments by domicile: the U.S., Europe and Rest of the World, and provides more granular data for Canada, Australia, New Zealand, Japan and a group of countries under the label Asia ex-Japan.

Europe continues to dominate the global sustainable fund landscape with 82% of sustainable fund assets, followed by the US, which domiciled 12% of global sustainable fund assets through March.