Investment in sustainable funds has dwindled compared to the initial amounts at the start of the year.
European Sustainable Fund Inflows Decrease in Q2 2021
Sustainable fund inflows in Europe saw a decrease in the second quarter of 2021, marking a 25% drop from the first quarter's inflows. This decline was primarily due to uncertainty and caution around ESG investing, particularly before the implementation of the European Securities and Markets Authority (ESMA) fund naming guidelines [1].
During this period, Europe witnessed outflows totaling approximately $7.3 billion in sustainable funds, contrasting with inflows of $8.6 billion in the following quarter after recovery efforts began [2]. The cautious stance also reflected broader geopolitical and tariff uncertainties, especially concerning US policies that made some asset managers more cautious about ESG investments, affecting inflow momentum in Europe [1][2].
Despite the decrease, the total assets under management in sustainable funds in Europe did not decrease and amounted to over $1.1 trillion by the end of June 2021 [1][2]. The fund universe grew by 286 to 3,739 funds as a result of the SFDR in Europe [1].
The majority of inflows went into sustainable fixed income funds, attracting $10.1 billion in Europe during this timeframe, although this was slightly lower than the previous quarter's $12.8 billion. Active strategies garnered $4.1 billion, and passive funds rebounded with $4.5 billion in flows [1]. European equities remained a bright spot for sustainable investing, recording net inflows that reversed losses from earlier quarters [3][4].
Sustainable bond funds experienced the strongest decline in inflows, with a 43.7% decrease in the second quarter of 2021 [1]. However, European equity funds saw a 29% decrease in inflows, but still recorded net inflows [1][2][3][4].
The SFDR introduced in Europe may have contributed to the growth of the fund universe and the slowdown in European money flow [1]. Despite the decrease in inflows, the global sustainable funds market continued to grow, with assets under management increasing by 12% to $2.24 trillion by the end of June 2021 [1].
Blackrock, Amundi, Nordea, and UBS were the four largest providers of sustainable funds in Europe, measured by inflows in the second quarter of 2021 [1]. Sustainable multi-asset funds received record inflows of $22.8 billion, a 10.3% increase from the first quarter [1].
In conclusion, while sustainable fund inflows in Europe decreased in the second quarter of 2021, the total assets under management remained stable. The majority of inflows went into sustainable fixed income funds and European equity funds, with both active and passive strategies seeing renewed investor interest after initial withdrawals [1][2][3][4]. Despite the slowdown in European money flow, the global sustainable funds market continued to grow.
[1] Morningstar Research [2] European Fund and Asset Management Association (EFAMA) [3] Refinitiv [4] Bloomberg Intelligence
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- The cautious approach towards ESG investing, combined with broader geopolitical uncertainties, might have influenced the finance sector, leading to a decrease in insurance companies' involvement in environmental-science focused sustainable funds during Q2 2021.
- The growth in the number of sustainable funds in Europe, following the introduction of the SFDR, could potentialy impact the business landscape, leading to increased opportunities for science-focused firms in the environmental-science sector to partner with these funds.
- In the context of the European Sustainable Funds market, while investing in sustainable fixed income funds and European equities saw renewed interest, there was a significant drop in inflows towards sustainable bond funds, which could indicate a shift in the financial strategies of asset managers involved in environmental-science-related endeavors.
