91.7% decline but sustainable funds more resilient

Investment flows into sustainable funds suffered a significant hit in the first quarter declining 91.7% but research house, Morningstar, says the sector is still more resilient than the broader market.

The Morningstar first quarter Sustainable Investing Landscape released this week noted a steep drop off in flows with an estimated $214 million invested into sustainable strategies, down 91.97% than the previous quarter.

“Given the market volatility we experienced this quarter, exacerbated by US regional bank insolvencies, and concerns around the viability of European bank Credit Suisse (since acquired by UBS) it is not surprising that investor confidence was tested. The continued rising interest rates also increased concerns of the risk of recession,” the Morningstar analysis said.

“To provide context we compared all sustainable investment flows with the broader market flows. The enduring trend of sustainable fund flows being more resilient than the broader market remains intact,” it said.

“Across the three-year period in every quarter except of the first quarter of 2020, when sustainable funds produced a small outflow of $38 million due to the pandemic, sustainable fund flows have been consistently positive,” the analysis said. “The sustainable funds pandemic outflow was insignificant in comparison to the broader market outflow of $2.184 billion.”

“While the magnitude of sustainable inflows does ebb and flow in line with market conditions, tougher market conditions have tended to correspond with lower inflows, and the resilience of inflows compared with the broader market is indisputable. There have been five-consecutive quarters of outflows from the broader market to date, and during that same time, there have been positive inflows into sustainable investments.”

The Morningstar analysis identified Australian Ethical, with total assets of $7.905 billion as the dominant Australasian provider of sustainable strategies in the Morningstar database, followed by Vanguard Investments Australia with $5.850 billion, and DFA Australia Limited trailing with $4.764 billion.

It said that with two new strategies launched in the first quarter of 2023, there were now 201 strategies in our Australasian sustainable fund universe.