Investors are on track to withdraw more money from global climate funds than they deposit this year for the first time, Morningstar Sustainalytics said on Thursday, presenting an obstacle to energy-transition efforts.
Net withdrawals from the funds reached nearly $24 billion for the first nine months of 2024, the arm of Chicago-based research firm Morningstar said, compared with net deposits of $40 billion during the first nine months of 2023.
The funds have recorded net deposits every year since they were tracked separately in 2018, peaking at $151 billion in 2021. Inflows then fell to $60 billion in 2022 and $40 billion for 2023, Morningstar Sustainalytics said.
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The research firm said the recent outflows reflect factors such as the poor performance of renewable energy stocks, concerns about greenwashing, and anti-ESG sentiment.
High interest rates also played a role, said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, holding back the performance of growth-oriented companies involved in areas such as solar power.
“Those are the companies that can be quite sensitive to interest rates. The financing costs have really weighed on their valuations in the stock market,” Bioy said.
Climate funds’ total assets were $572 billion as of Sept. 30, up six per cent from the start of the year, driven by market appreciation. About 85 per cent of those assets were held in European-domiciled funds, with six per cent in China-based funds and five per cent in U.S.-based funds.
Among the climate funds, climate-transition funds that favor companies better positioned for a low-carbon economy had an average return of 17.2 per cent through September, versus 12.4 per cent for the average peer in the global large-cap blend equity category.
Clean energy/tech funds have lagged peers since 2021 and had a negative return of 3.2 per cent through September.
There were 69 new climate-fund launches through September, off their 2023 pace when more than 200 were launched over the full year.
(Reporting by Ross Kerber; Editing by Rod Nickel)
