According to the latest quarterly Morningstar report, positive flows were driven by active strategies which gained US$434 million. In contrast, passive sustainable funds gained US$133 million.
The total size of Australasian sustainable investments was US$31.2 billion and there are 263 different strategies.
The top five asset managers for sustainable fund assets were Australian Ethical, Dimensional Fund Advisors Australia (DFA), Betashares Capital, Vanguard Investments Australia, and Mercer Investments (Australia).
The top three companies accounted for over a third of all sustainable fund flows at 16.3 per cent, 11.3 per cent, and 10.6 per cent, respectively.
Morningstar noted Vanguard’s sustainable fund assets almost halved in the three months to 30 June from $3.6 billion to $2 billion with its Ethically Conscious International Shares fund feeling the brunt of most of the outflows.
The firm received infringement notices from the Australian Securities and Investments Commission in December 2022 for alleged greenwashing on the product disclosure statements on its Vanguard International Shares Select Exclusion Index funds.
It said: “The Australian sustainable funds market remains quite concentrated, with the top 10 firms accounting for more than two-thirds of total assets in sustainable funds, which has been stable since the end of the third quarter of 2023.
“Australian Ethical has seen a marginal decline of its market share compared with the previous quarter. DFA continues to steadily grow its market share and now sits in second place, replacing index giant Vanguard, which after its huge second-quarter outflows fell by two ranks and landed behind Betashares.”
Globally, sustainable funds saw net quarterly outflows for the first time on record with withdrawals of $2.5 billion. Some US$5 billion of the outflows came from the US where ESG is experiencing a political backlash and macroeconomic concerns.
“Sustainable equity funds generally underperformed their conventional peers in 2023 though by a smaller margin than in 2022. Some of the macroeconomic pressure that contributed to their performance – such as high interest rates and supply chain disruptions – continue to feature in market outlook for 2024.
“In addition to middling returns, greenwashing concerns persisted in the absence of clear regulation for ESG and sustainable investing. Finally, the continued polarisation of ESG investing contributed to a chilling effect on demand for sustainable funds.”
