Launches Of Sustainable Funds Falter Amid Industry Apprehension

As asset managers stop products and reconsider how they market sustainability due to poor performance, investor withdrawals, and increased regulatory scrutiny, the global sustainable fund industry has only seen a few fresh launches this year.

According to Morningstar data, Europe, the largest market in the world, launched a record low of 13 funds in the second quarter, which is about two-thirds fewer than the 35 launches that occurred a year earlier. It was the largest gap since at least the first quarter of 2023, with 64 funds closing, or nearly five funds for each launch.

During the quarter, 16 funds were launched in Asia outside of Japan, all from China, while three U.S.-based funds were established versus 22 closures. New Zealand, Australia, and Canada reported launch-free quarters for the second time in a row.

Since 2022, the development of sustainable fund products has been on hold because to a political backlash in the United States against investing with consideration for social and environmental issues, declining demand following lower returns, and new regulations in Europe that make it more difficult to classify a fund as sustainable.

Asset managers who make claims about sustainability have also come under increased scrutiny; last year, German prosecutors fined DWS €25 million for making what they called “greenwashing” representations.

According to Monika Calay, director of UK manager research at Morningstar, “both fund flows and product development continue to be influenced by regulatory uncertainty, greenwashing concerns, and the political backdrop.”