The heyday of sustainable investing is over
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The party is over for U.S. sustainable fund managers, who saw record outflows from the asset class in 2024.
Why it matters: The outflows coincide with fund managers withdrawing from environmentally focused investor groups, opening the question of whether they're doing so because of increased political scrutiny, or just because the business isn't growing any more.
The big picture: Big fund managers seem to have given up on making a stand when it comes to environmental, social and governance issues.
- Even within their sustainable funds, BlackRock backed only 11% of key ESG resolutions in 2024, as calculated by Morningstar, while Vanguard backed an astonishing 0%.
- One company that still backed 100% of the resolutions, Parnassus, also saw the biggest outflows: $1.8 billion left its Core Equity Fund in the fourth quarter.
Where it stands: Sustainable funds are still growing in Europe, where inflows totaled $18.5 billion in the fourth quarter and $52.4 billion for the year.
- Even there, however, that number is down sharply from more than $500 billion in 2021.
Follow the money: In the U.S., sustainable funds have now seen outflows for nine successive quarters. That's in stark contrast to conventional funds, which saw some $300 billion of inflows in the fourth quarter alone.
- A similar trend is visible in the number of sustainable funds: 10 new U.S. funds were launched in 2024, well below the triple-digit numbers seen in 2021 and 2022.
- 60 were liquidated, 11 were merged into other funds, and 24 dropped ESG mandates. (What used to be the Abrdn International Sustainable Leaders fund, for instance, is now simply Abrdn Emerging Markets Dividend.)
The other side: The preference of investors, as seen in outflows from ESG funds, goes against their stated preferences in sustainable investing.
- A Morgan Stanley survey last year found 54% of investors intending to increase their ESG investments in 2024, with 77% of them interested in the asset class broadly.
The bottom line: While investing sustainably is considered a core part of fiduciary duty in Europe, it's increasingly seen as a violation of fiduciary duty in the U.S.
- As such, investing even in a passive sustainable fund feels like an active choice. Right now it's not a choice many people seem to want to make.
