Investor appetite for sustainable funds in the United States continued to wane amid ESG backlash in 2024, according to Morningstar in today's (16 January) published annual US Sustainable Funds Landscape report.
US sustainable funds suffered net outflows every quarter of the year, amounting to $19.6bn, up from $13.3bn in 2023. By contrast, conventional funds received about $740bn of net new money.
The report examines the flows, assets, performance, and changing nature of this fund group over the past year.
It revealed US sustainable funds continued to face headwinds in 2024. Returns lagged their conventional peers, political scrutiny persisted, and greenwashing concerns endured.
High interest rates penalized some areas of the market, such as clean energy stocks, while climate funds experienced their first year of outflows, with redemptions reaching $2bn.
Despite the outflows, assets in sustainable funds rose to $344bn in 2024, supported by market price appreciation. This represents a 6.3% annual growth.
Product development dried up as just 10 new sustainable funds hit the shelves in 2024—the lowest level the group has seen in 10 years.
For the first time, U.S. sustainable fund closures and departures outpaced new launches and reached an all-time high: 71 sustainable funds closed, and 24 funds moved away from ESG mandates.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics and author of the report, said: "2024 was a turbulent year for ESG funds, with the increased politicization of ESG issues, continuously high interest rates, greenwashing concerns, and a general preference for conventional strategies in a bull market.
"The outlook for U.S. sustainable funds in 2025 is very uncertain. Recent weeks have seen companies backtrack on ESG commitments and Net Zero alliances review their purpose. Under the new Trump administration, we may see litigation pressures exacerbate "greenhushing," where companies downplay their sustainability efforts. All these developments bring new challenges to investors interested in sustainability-focused investments."
