Record $8.8 billion pulled from US sustainable funds in Q1

By Ross Kerber

(Reuters) - European and American investors showed converse interest in sustainable funds during the first quarter, research firm Morningstar said on Thursday, with a record $8.8 billion in net withdrawals from the products in the U.S.

A combination of factors likely contributed to the U.S. sustainable fund outflows during the first three months of 2024, said Morningstar. These included "high interest rates, middling returns in 2023, greenwashing concerns, and the continued politicization of environmental, social, and governance (ESG)-focused investing," the firm said.

Meanwhile European sustainable funds registered $10.9 billion of net deposits, more than double the prior quarter. Europe accounted for 84% of the nearly $3 trillion in global sustainable fund assets.

European consumers, and politicians, have supported greener products and climate-minded regulations. Meanwhile U.S. Republican politicians including many from energy-producing states have stepped up their attacks on investors' use of ESG considerations, saying firms should focus on traditional financial results.

The European fund inflows were still relatively weak compared to periods as recently as the fourth quarter of 2021, when they took in around $130 billion.

The lower flows were partly due to inflation and recession concerns in some countries, Morningstar wrote.

In addition, the firm wrote, "some investors are taking a more cautious approach to ESG investing in the wake of the underperformance of ESG and sustainable strategies in 2022 partly owing to their typical underweight in traditional energy companies and overweight in technology and other growth sectors."

Among U.S. funds, BlackRock's iShares MSCI USA ESG Select ETF had the largest net outflow, $2.1 billion, and its iShares ESG Aware MSCI USA ETF had the third-most outflow, $1.9 billion, during the quarter.

But BlackRock also had the European sustainable fund with the highest net inflow during the quarter, the BlackRock ACS North American ESG Insights Equity fund, which took in $4.8 billion.

BlackRock did not immediately comment.

(Reporting by Ross Kerber; editing by David Evans)