Sustainable-labelled funds in the US saw net outflows worsen in 2024 even as traditional peers enjoyed boom times, according to a new Sustainalytics report.
The Morningstar environmental, social and governance (ESG) research subsidiary found US sustainable fund net outflows increased to US$19.6 billion last year from US$13.3 billion in 2023.
“By contrast, investors poured about [US]$740 billion of net new money into conventional funds,” over 2024, the Sustainalytics report says.
And the result represents a massive drop from the bumper years of 2021 and 2022 when net flows into the sustainable sector hit US$50 billion and US$70 billion, respectively.
The ESG fund sector in the US faced “continued headwinds” last year, the study says, as underperformance compared with traditional products combined with “political scrutiny” and ongoing “greenwashing concerns”.
Other market-based factors also proved a drag on sustainable investors such as the asymmetrical impact of ongoing high interest rates on certain sectors “such as clean energy stocks”.
Despite the uptick in outflows, sustainable funds in the US still managed to book annual growth of 6.3 per cent on the back of strong markets to finish the year on US$344 billion.
Niche ESG manager, Parnassus, reported the highest sustainable fund net outflows last year of some US$7.3 billion followed by BlackRock (US$6.6 billion) and Morgan Stanley (US$2.1 billion).
However, Vanguard and Fidelity avoided the ESG carnage with positive net inflows of almost US$1.8 billion and US$1.4 billion during 2024 with Dimensional (US$885 million), Invesco (US$877 million) and First Trust (US$809 million) recording gains for the 12-month period.
In total, sustainable equity funds in the US saw net outflows of US$21.8 billion while a positive net flow of US$2.7 billion to fixed income products defrayed some of the damage.
Sustainable fund creation also reached a new low in the US last year as closures trumped new launches for the first time: 71 funds in the universe shuttered in 2024 while 24 strategies “moved away from ESG mandates, mostly by dropping ESG-related terms in their names”, the report says.
Only 10 new US-based sustainable funds hit the shelves last year, equating to “the lowest level seen in 10 years”.
But the flow figures stand in contrast to retail and institutional surveys the suggest strong investor support for sustainable strategies, the study says.
“A new source of uncertainty is the incoming Trump administration, which may create further stumbling blocks for sustainable investing in the US,” the Sustainalytics report says.