Climate-focused funds globally are set to collectively suffer their first year of outflows to the tune of almost US$24 billion, according to new research by data provider Morningstar Sustainalytics. The report, which reviewed the global climate funds landscape from January to the end of September, noted that these outflows are in “stark contrast” to the US$345 billion combined inflows over the last four years. Investors pulled the most money (US$25 billion collectively) from funds focused on climate solutions and clean energy and tech funds. Funds tracking Paris-aligned benchmarks also experienced US$7.4 billion in outflows during the nine months tracked, despite their general outperformance. In addition, the number of climate funds launched globally fell to 69. However, global assets in mutual funds and exchange-traded funds with a climate-related mandate increased by 6% since January to US$572 billion. In the US, climate transition funds continued to see positive flows, with assets reaching US$10.7 billion – up 25% in the last nine months. “As the consequences of climate change become increasingly visible and costly, it may be surprising to see outflows from strategies designed to help investors consider climate in their investment portfolios,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “However, investors can see this either as a risk factor or as an opportunity.” She said several factors have contributed to this trend, including the high interest rates environment, an uncertain political and regulatory, and greenwashing concerns and anti-ESG sentiment. “Whether these headwinds will subside or continue in 2025 and beyond remains to be seen,” Bioy noted.
