According to investment research house Morningstar, the first quarter of 2023 saw sustainable investment inflows drop dramatically, down 91.97 per cent on the previous quarter, or 78.30 per cent adjusted.
Morningstar pointed out that there was a significant one-off boost to flows in Q4 2022 due to the merger between Australian Ethical and Christian Super. However, adjusting for the merger, sustainable flows for that quarter were up 110 per cent on Q3 2022, attracting $970 million.
“All in all, this quarter’s flows were significantly lower than the previous quarter — net positive inflows were $214 million, down by $2.459 billion (or $775 million adjusted) — compared with the previous quarter,” Morningstar said.
“Given the market volatility 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.
“On top of this, interest rates continued to rise, increasing concerns of the risk of recession.”
Vanguard took a hit in Q1 2023, with Morningstar calling its net outflows a “surprising outcome”.
“Vanguard has the second-highest sustainable investment market share, and typically records strong inflows relative to its sustainable peers,” the firm said.
“Its outflows are at odds with peers who generated positive inflows, albeit at a more anaemic pace than the previous quarter.”
Unlike the previous quarter, passive flows outpaced active flows in Q1 2023, attracting $113.29 million and accounting for 59.25 per cent of all inflows, while active strategies accumulated $77.91 million. In Q4 2022, active inflows dominated with 80 per cent of all sustainable flows.
Following its merger with Christian Super last quarter, Australian Ethical maintained its spot at the top of the fund houses by sustainable funds-under-management market share with 17.19 per cent.
The rest of the top five are Vanguard Investments Australia with 12.72 per cent, DFA Australia with 10.36 per cent, ETF provider Beta Shares with 9.31 per cent, and Mercer Investments (Australia) Limited with 5.13 per cent.
However, DFA captured the most inflows of any fund house in Q1, with $116 million of net flows. Australian Ethical was second with $101 million, followed by BlackRock with $100 million.