Australasia defies record ESG outflows

Mike Taylor

Managing Editor and Publisher

1 May 2025

Australia and New Zealand ESG funds have in a small way defied the trend of record outflows from sustainable funds in the first quarter of 2025, mostly generated by the election of US President, Donald Trump and ongoing geopolitical tensions.

The latest analysis from research and ratings house, Morningstar revealed that investors withdrew an estimated US$8.6 billion from ESG funds in the first quarter, significantly eroding the YS$18.1 billion of inflows in the previous quarter.

The analysis showed that Europe suffered its first quarter of net outflows since at least 2018, while investors in the US pulled money out of sustainable funds for a tenth consecutive quarter with Asia also recording withdrawals.

By contrast, Canada and Australia and New Zealand attracted net new money.

The Morningstar analysis said that several interconnected factors had led to the outflows from sustainable funds.

“First, an increasingly complex geopolitical environment—shaped in part by President Donald Trump’s return to the White House—has deprioritized sustainability concerns in Europe, including climate goals,” it said. “In addition, Trump’s anti-climate agenda and anti-ESG policy measures such as an executive order targeting diversity, equity, and inclusion, have introduced new legal risks.”

“These developments have prompted asset managers in the U.S. to adopt a more cautious global approach in promoting their ESG credentials and supporting sustainability issues,” Morningstar’s analysis said.

“For some European investors, the rollback in ESG commitments by US firms has created hesitation, undermining the sense of global alignment on climate and sustainability goals. This hesitation is further compounded by an evolving European regulatory agenda and ESG fund landscape, while persistent performance concerns— particularly in already challenged sectors such as clean energy—continue to weigh on investor appetite for sustainability strategies.”

Looking at Australia and New Zealand the analysis said that there had been positive first quarter net flows of around US$305 million mostly driven by passive strategies.

It said the total size of Australasian sustainable funds was estimated at US$31 billion as of 31 March.

The analysis noted that the Australian sustainable fund market remains quite concentrated with the top 10 firms accounting for 68% of total assets in sustainable funds.

It said Dimensional Fund Advisers holds the largest market share, followed by Betashares and Vanguard.