Sustainable Fund Q1 Inflows Dip, but Less Than Broader Market

(Reuters) - Inflows to sustainable funds held up better than conventional peers during the first quarter of 2022, a new report showed on Tuesday, but a big green bond fund took a hit as such debt faces headwinds.

Global sustainable funds drew $96.6 billion in net new deposits in the first quarter of 2022, according to the report by researcher Morningstar Inc, a 36% decline compared to the prior quarter but still better than the 73% decline in inflows in the broader fund market over the same period.

"Amid investor concerns over inflationary pressures and the war in Ukraine, sustainable funds still held up better than the broader market," Morningstar said.

The report also showed total assets in sustainable funds stood at $2.77 trillion as of March, a 4% decline from the prior quarter but also less than the 5.5% decline for the broader market.

The report covered 6,452 funds that claim to focus on areas like environmental, social or governance (ESG) factors, the bulk of which are based in Europe.

Investors interested in issues like climate change and workforce diversity have poured money into ESG funds in recent years and their net assets at March 31 were still higher than they were a year earlier, around $2 trillion, and compared with around $1 trillion at March 31, 2020.

Passive fund managers continued to dominate Morningstar's list of companies taking in the most money to sustainable funds, led by BlackRock Inc whose ESG-type products drew net new deposits of $10.9 billion in the first quarter.

However a BlackRock ESG fund, iShares Green Bond Index Fund, had the most outflows of any sustainable fund in the quarter, nearly $2 billion. Green bonds issued by companies to finance projects with environmental benefits face the same headwinds as other bonds, such as rising inflation.

In addition, Morningstar said, corporate issuers increasingly use sustainability bonds linked to specific ESG targets.

By Ross Kerber
Editing by William Maclean


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