ESG Investor Targeting: Renewed Inflows into Sustainable Funds

The hype around ESG seemed to have taken a significant hit in recent months. Particularly in the USA, the topic was approached with considerable caution.

However, according to Morningstar, sustainable funds experienced a notable inflow of new money in the second quarter of 2024. After outflows of $2.9 billion in the first quarter, sustainable active funds and ETFs, among others, attracted net inflows of $4.3 billion in the second quarter.

Europe Leads in ESG Fund Inflows

The inflow was especially strong in Europe: $8.4 billion was invested in ESG funds in the first quarter, and $11.8 billion in the second quarter. This contrasts with the USA, where $4.7 billion was withdrawn in the second quarter and even $8.8 billion in the first quarter. Japan also recorded outflows, while the rest of Asia saw inflows. Overall, the assets of sustainable funds worldwide increased to $3 trillion by the end of June 2024, mainly due to rising stock prices.

Inflows and outflows in ESG funds

 

However: Fund Giants Reduce Launches of New ESG Funds

Despite the recent inflows, major fund providers have significantly reduced the launch of new ESG funds. Blackrock, DWS, Invesco, and UBS were among those that reduced the number of new ESG funds. By the end of May 2024, just over 100 new ESG funds had been launched globally, far below the levels of previous years. In 2023, yet 566 ESG funds were launched, and even 993 in 2022. In May 2024, only 16 new funds were launched, the lowest monthly number since early 2020.

Development of new ESG fund launches worldwide

 

In contrast, conventional funds have seen a high number of new launches. By the end of May 2024, 2,576 new conventional funds had been launched, representing about 40 percent of the total for 2023. These funds attracted $158 billion by the end of May, compared to $183 billion for the entire previous year. In contrast, newly launched sustainable funds brought in only $6.8 billion, compared to $37.2 billion in 2023. Fund providers view the reduction in new ESG funds as a sign of market maturity. After several years of buildup, there are fewer gaps in the offerings, explains Christoph Zschätzsch of DWS. This development is seen as a normalization.

Implications for Investor Targeting & ESG
Although the development of sustainable equity funds overall received a setback and the market is clearing up, sustainable equity funds still represent an important component in investor targeting. In the context of ESG investor targeting, it is worthwhile to identify relevant ESG funds, analyze the focus areas of these funds, and work out the informational needs of ESG fund managers and address the fund managers specifically. This can be implemented, for example, in the context of a ESG roadshow or specific ESG conferences.