Global Sustainable Fund Flows: Q4 2024 in Review

The global sustainable fund universe encompasses open-end funds and exchange-traded funds that, through their prospectus or other regulatory filings, claim to focus on sustainability, impact, or environmental, social, and governance factors. The global universe is divided into three segments by domicile: Europe, the United States, and Rest of World.

Global sustainable funds ended 2024 with the highest quarterly inflows of the year, with subscriptions amounting to USD 16 billion in the fourth quarter, driven by Europe, which more than doubled its inflows to USD 18.5 billion from the revised USD 8.9 billion in the third quarter. Europe continued its dominance in the global sustainable fund universe with a market share of 84%, reflecting its pivotal role in the global sustainable fund landscape.

In contrast, the United States saw outflows deepen to USD 4.3 billion from the previous quarter's USD 2.0 billion. Inflows in Asia ex-Japan showed modest growth to USD 2.7 billion, though the region's contribution to global assets remained small at 2%. Meanwhile, outflows from Japan rose to over USD 1 billion, from the restated USD 600 million in redemptions in the previous quarter.

This article is adapted from a recent report published by Morningstar Sustainalytics. The Global Sustainable Fund Flows report is available to download for free.

Inflows into global sustainable funds reached their zenith of USD 645 billion in 2021, when the broader market also enjoyed record inflows of over USD 2.4 trillion. In 2022, global sustainable fund flows plunged by 75% but remained positive, while the broader market registered outflows, against a challenging macro backdrop that included the war in Ukraine, high inflation, and recession fears. Sustainable fund flows remained resilient for most of 2023 (except in the US), while the broader fund market slowly recovered. In 2024, inflows into global sustainable funds shrank by half, while the rest of the market enjoyed a boom, recording the second-largest subscriptions in seven years, boosted by a US stock rally.

After reaching a new high of USD 3.3 trillion at the end of the third quarter, global sustainable fund assets retreated by 4% to USD 3.2 trillion at the end of 2024. For context, the Morningstar Global Market Index lost 1.3% over the fourth quarter. It was a period of shifting narratives, with the US election, a surging dollar, stubborn inflation, and a more cautious interest-rate-cutting stance.

Bonds had a tougher quarter. The Morningstar Core Bond Index fell by 5.1% in the fourth quarter amid signs that the US Federal Reserve could be done with rate cuts for a while. Europe takes up 84% of global sustainable fund assets, followed by the United States at 11%.

Product development improved in the last quarter of 2024, with 86 new sustainable funds introduced worldwide, compared with the revised 60 in the previous quarter. These numbers, however, will likely be revised upward in the next report as additional launches are identified.

Throughout 2024, there were 311 new sustainable fund launches, representing a cooldown compared with the 572 launches of 2023. This points to a normalization of sustainable product development activity after three years of high growth driven mainly by Europe as almost every asset-management firm hastened to build core sustainable fund ranges to meet the growing demand. Asset managers have become more selective and tactical in their approach to product launches. Additionally, regulations, a growing anti-ESG sentiment, and persistent greenwashing accusations have made asset managers more cautious about launching sustainable products.

While European sustainable fund flows doubled in the fourth quarter of 2024, withdrawals deepened in the United States. Canada's sustainable fund universe experienced outflows of USD 56 million in the fourth quarter of 2024, following redemptions of USD 77 million in the third quarter. There were positive net flows into the Australasian (Australia and New Zealand) sustainable funds universe of around USD 357 million, and outflows from the Japanese sustainable funds landscape continued into the fourth quarter, with net withdrawals of more than USD 1.0 billion—its 10th consecutive quarter of outflows.

There is a lot to unpack here. To get into the thick of it, download the free Global Sustainable Fund Flows report published by Morningstar Sustainalytics. It includes in-depth commentary on analysis on each domicile as well as the top global asset managers and their performance.

The data evaluated in the report was generated in Morningstar Direct, a comprehensive application that helps asset and wealth managers build their assets and manage their portfolios. Start a free trial of Morningstar Direct today.