Economy zaps sustainable fund flows

May 04, 2023 View in browser   By Allison Prang THE BIG IDEA Sustainable fund flows fell in the first quarter of this year. | Morningstar Direct Sustainable funds are taking a hit and the state of the economy is the culprit. Fund flows for sustainable funds globally dropped in the first three months of this year to $29 billion, declining from roughly $38 billion in the fourth quarter of last year, Morningstar said in a recent report. The firm attributed the drop to economic pressures like a looming recession and higher interest rates. Total flows were also hurt by outflows in only two regions: the U.S. and Japan. The U.S. saw $5.2 billion in outflows mostly from a single fund, iShares ESG Aware MSCI USA ETF. (The fund lost more than one-fifth of its value during a single day in trading in March, partly from BlackRock scaling back its allocation to the fund, Morningstar said.) This is the second quarter in a row and the third quarter over the course of one year where the U.S. has logged outflows. Almost $12.4 billion has been pulled out of sustainable funds in the U.S. over the last year, according to Morningstar. “Global macroeconomic pressures, including an ongoing energy crisis and rising fears of recession, have driven this retreat,” the firm said in its report specifically focused on the U.S. Europe experienced the most inflows at $32.3 billion. All other regions paled significantly in comparison. Morningstar Direct Global sustainable fund launches were also substantially lower in the first quarter compared with other recent quarters, totaling just 113, according to Morningstar. The report attributed the drop in sustainable product development to a sizable decline in European fund launches. It noted that other parts of the world saw continued momentum. Global sustainable funds’ assets, meanwhile, climbed to $2.74 trillion from $2.55 trillion, according to Morningstar, marking the second consecutive quarter that they’ve risen. Funds’ assets took a hit in the beginning of 2022 but have been recovering in recent quarters. That growth rate of 7.5 percent was more than the overall global fund market growth rate of 4 percent, according to Morningstar. Morningstar Direct   GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGSITER HERE.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, dkahn@politico.com, jwolman@politico.com and aprang@politico.com. Want more? Don’t we all. Sign up for the Long Game. Four days a week and still free! WHAT WE'RE CLICKING — A coalition of investors overseeing $10 trillion in assets is citing financial risk as it calls on companies to significantly reduce reliance on plastics, according to the Financial Times. — Shipping giant Maersk is dumping its stake in The Metals Company, joining an exodus of big investors from companies looking to capitalize on rules that would allow seabed mining, the Wall Street Journal reports. — Louisiana business groups are joining with petrochemical giants to create a “sustainability council” to help push back against grassroots environmental activists, the Guardian says.   DON’T MISS THE POLITICO ENERGY SUMMIT: A new world energy order is emerging and America’s place in it is at a critical juncture. Join POLITICO on Thursday, May 18 for our first-ever energy summit to explore how the U.S. is positioning itself in a complicated energy future. We’ll explore progress on infrastructure and climate funding dedicated to building a renewable energy economy, Biden’s environmental justice proposals, and so much more. REGISTER HERE.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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