U.S. sustainable funds returned to inflows in June, report says

Investors resumed deposits into U.S. sustainable funds last month, marking a return to the norm after net withdrawals in May broke a three-year streak of monthly inflows, researcher Morningstar said on Monday.

Sustainable mutual funds and ETFs, including those using environmental, social and governance (ESG) factors, notched a “modest” $528 million of net new deposits in June after shedding $3.2 billion the month prior, according to Morningstar’s latest figures.

“Investors may have turned back to ESG and renewable energy, thinking that the worst of the downturn was already priced in,” said Alyssa Stankiewicz, Morningstar’s associate director of sustainability research.

Investors’ ESG commitments have been tested this year by the onset of a bear market, driven by rising interest rates and concerns over a potential recession, as well as underperformance by U.S. sustainable funds.

Indeed, the positive flows in June could not reverse a marked slowdown in momentum for sustainable funds during the first half of the year.

Sustainable funds attracted $9.0 billion in net new deposits during the six months ended June 30, far below the $39.4 billion they gathered during the same period in 2021, according to Morningstar.

Most sustainable funds are equity funds, which have also experienced inconsistent flows this year amid stock market volatility.

U.S. equity funds gathered $14.8 billion in net new deposits in June, their fourth month of inflows this year, according to Morningstar.

Investors pulled $61 billion overall from U.S. long-term mutual funds and ETFs last month. It was their third consecutive month of outflows, the research firm said.