A new analysis from Morningstar has revealed Australasian sustainable fund flows surged 31 per cent to $2.6 billion in the fourth quarter of 2022.
Part of the surge has been attributed to one-off flows off the back of the merger between Australian Ethical and Christian Super.
However, when adjusted for the merger, fund flows rose 10 per cent ($910 million).
This follows a period of subdued investor demand amid “negative performance outcomes” across both growth and defensive assets over the course of 2022.
This came off the back of a number of market headwinds, particularly aggressive hikes to interest rates aimed at curbing elevated inflation.
But when compared to other asset classes, sustainable fund flows largely withstood sharper corrections across other asset classes.
“While 2022 was difficult for sustainable investors, sustainable asset flows have been more resilient when compared with the broader market,” Morningstar observed.
Morningstar noted it has identified 190 Australasian-domiciled sustainable investments through its framework, of which, 148 exclude “investment in controversial areas”, including tobacco (139) and controversial weapons (136).
Investors favouring active strategies
Meanwhile, the analysis revealed that eight new funds were established in the fourth quarter of 2022 — seven active funds and one passive fund.
Morningstar observed that on the whole, active strategies are currently favoured over passive, with 72 per cent of assets invested actively.
Over the fourth quarter, 81 per cent of net flows were invested into active strategies, up from 69 per cent in the previous quarter, and just 31 per cent in the second quarter.
Australian Ethical leads the pack
When comparing flows registered by fund managers, Australian Ethical reported an outsized net flow of $1.6 billion, mainly attributed to its merger with Christian Super.
Vanguard posted the second largest sustainable fund inflows ($261 million), followed by Dimensional ($231 million), BetaShares ($134 million), and State Street Global Advisors ($72 million).
