In the research house’s global environmental, social and governance (ESG) flows report for the three months to 31 December, Morningstar revealed closures and rebranding activity surged in 2024.
In Europe, 94 sustainable funds closed in the fourth quarter, bringing the total to 351 for the year. Meanwhile, 213 funds underwent rebranding, with 50 dropping key ESG terms.
In the US, 19 sustainable funds were closed in the final quarter, marking the sixth consecutive quarter of closures outpacing new launches.
In Australasia, specifically, there were 12 sustainable fund closures during the fourth quarter, including funds from Magellan and BNP Paribas, indicating tough conditions for fund houses, in general, as margin pressures crept up.
“Some of the notable closures among the sustainable fund cohort were BNP Paribas Earth Trust, Affirmative Global Bond, Magellan Core ESG, and Magellan Sustainable. Maple-Brown Abbott closed its Australian Sustainable Future strategy, while Platinum shut its Global Transition ETF, and Zurich Investments closed the ACI Healthcare Impact strategy as well,” Morningstar said.
A key issue locally is fund providers’ concerns over greenwashing scrutiny, with Mercer and Vanguard already facing penalties of US$7 million and US$8 million, respectively, for false or misleading representations.
As a result, several fund managers have already begun to rename or close ESG or sustainable strategies to avoid accusations of misleading conduct.
Globally, a major influencing factor is Donald Trump’s return to office, which is casting further uncertainty over the US Securities and Exchange Commission’s climate disclosure rules.
“The onus is on the strategies and firms to ensure that their communicated identities and purposes are clear and precise. These need to be supported by documented evidence of their claims, with transparency around the metrics used, and have third-party validation or certification. Inadequate reporting frameworks and compliance mechanisms present the most risks for greenwashing,” Morningstar said.
There were five fund launches in Australasia during the period, up from two in the previous quarter, including two ETFs from Betashares, which brought the total number of ANZ sustainable funds to 261.
Meanwhile, active sustainable funds in Australia and New Zealand saw inflows of US$251 million ($403 million), which was double of those into passive funds that saw US$105 million.
This contrasts with the trend seen in non-sustainable funds, where ETFs and passive investments are outpacing active ones.
Overall, ANZ sustainable flows were US$357 million during the quarter and US$400 million over the full year. Over half of this total went into fixed income sustainable funds, with the remainder into equity and allocation funds.
“Miscellaneous” funds, which cover property, infrastructure and alternatives, saw outflows of US$40 million.
This annual total was a positive reversal after the sector saw US$740 million in outflows during 2023.
While the return to inflows was positive, overall, ANZ sustainable assets under management declined 7 per cent from US$34 billion to US$30.8 billion, due to outflows and negative market movements.
Globally, Morningstar said Q4 saw the highest quarterly inflows of the year at US$16 billion. Product development rebounded with 86 new sustainable fund launches compared to 60 in the previous quarter.
