European sustainable funds, often referred to as ESG funds, are witnessing a substantial exodus of investors, driven by apprehensions surrounding economic instability and shifting regulatory paradigms. This shift in sentiment became particularly pronounced during the third quarter of 2023, with a staggering €20.5 billion ($21.7 billion) being pulled from funds residing within the European Union’s lower sustainability classification.
In stark contrast to the outflows observed in the ESG sector, conventional investment funds that do not explicitly market themselves as sustainable recorded €17.8 billion in fresh capital during the same quarter. Nevertheless, it is noteworthy that these inflows were less robust than those witnessed in the preceding quarter.
ESG funds, designed to incorporate environmental, social, and governance criteria into their investment strategies, have faced significant headwinds following their meteoric rise in 2021. This challenging environment is attributed in part to the comparatively superior returns delivered by non-ESG funds, as well as the transformative effects of regulatory modifications affecting the ESG landscape.
One pivotal regulatory change that has reverberated across the European financial ecosystem is the implementation of the Sustainable Finance Disclosure Regulation (SFDR). This legislation seeks to curb misleading assertions made by fund management companies regarding the sustainability of their investment products. Consequently, many fund managers have been compelled to reclassify their funds into lower sustainability tiers.
Morningstar, the renowned investment research firm, reports that, during the third quarter, a substantial portion of the withdrawals disproportionately impacted funds categorized as ‘Article 8’ under SFDR, characterized by “no commitment to sustainable investments.”
Concurrently, ESG funds within the highest sustainability category, commonly known as ‘Article 9,’ experienced inflows totaling €1.4 billion. However, this figure marks a considerable decline from the €3.7 billion recorded in the second quarter and represents the feeblest inflow observed since the introduction of SFDR in March 2021.
It is worth noting that the trend of investors pulling out from ESG funds is not limited to the European continent. In the United States, ESG funds are also grappling with adversity, as fund managers are shuttering ESG funds at a faster rate than they are opening new ones during the third quarter.
In summation, the ESG fund industry is currently navigating a complex landscape marked by economic uncertainties, evolving regulations, and concerns about performance. In response, investors are exercising caution, opting to reallocate their funds from ESG investments to non-ESG alternatives that promise more attractive returns.
Photo (Emile Hallez)
26th October, 2023
Delino Gayweh
Serrari Financial Analyst
Article and News Disclaimer
The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.
The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.
The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.
Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.
Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.
By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.
www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.
Serrari Group 2023
