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Equity funds with an environmental, social and governance (ESG) tilt suffered a large loss of investors in the three months to end-June, dragging the sector into a rare net outflow for a first half of the year, data showed.

Outflows were driven by economic and regulatory worries in Europe, analysts said, and by concerns connected to an anti-ESG backlash in the United States, where funds saw their fifth consecutive quarter of net outflows, according to Refinitiv data on the sustainable investment industry so far in 2023.

Elsewhere the mood was more upbeat, with green bond issuance reaching record highs as companies tapped into strong demand for sustainable debt.


ESG funds that invest in shares saw US$15.4-billion of net outflows in the second quarter, outpacing first quarter net inflows after a particularly rough June and even as global stock markets rallied, the data showed.

The half-yearly net outflow was only the third since at least 2013 and followed an even bigger loss in the second half of 2022.

U.S. funds lost money again, although the net outflow was lower than in previous quarters.

Analysts said the data underlined that once-booming ESG funds were no longer immune from wider market dynamics.

“Nervousness around equities as an asset class now also means nervousness about ESG equities,” said Edward Glyn, head of global markets at Calastone, which tracks fund flows.

ESG funds suffered their worst month on record in June for outflows, according to Calastone, with selling focused on North American funds as the backlash “dented enthusiasm,” as well as funds investing in Britain.

Some Republican politicians have pursued a campaign against ESG-driven investing, making asset managers increasingly nervous about playing up their ESG credentials.

ESG fixed-income funds enjoyed net inflows, with the popularity of the smaller asset classes holding up far better than equities.


Net assets across ESG funds fell in the second quarter and to below recent peaks, according to Refinitiv.

Data providers differ in what they consider to be an ESG product. Morningstar’s global director of sustainability research, Hortense Bioy, said their preliminary data suggested demand for more stringent ESG funds appeared resilient.

However, she said that managers’ desire to meet European Union regulations had encouraged some firms to reclassify their ESG funds as traditional products, impacting investor flows.

The anti-ESG backlash had also hit U.S. firms’ appetite for marketing sustainable funds, “which has had an impact on sales,” Ms. Bioy said on the sidelines of a conference this week.


Sales of green bonds – debt that companies say is ringfenced for environmentally friendly projects – enjoyed back-to-back record quarters in 2023, the data showed.

Issuance of sustainability linked debt and social bonds was strong but below record levels.

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