ESG fund closures in US outpace launches for first time since 2020 - Morningstar

By Isla Binnie

NEW YORK (Reuters) - Money managers in the United States have closed funds with sustainability mandates faster than they opened new ones over the past three months as investor appetite waned for the asset class overall, data firm Morningstar said on Monday.

Investment products with a declared aim to promote ethically responsible practices, from cutting greenhouse gas emissions to increasing workplace diversity, have lost their lustre in the U.S. since a 2021 boom, as regulators scrutinised how they were marketed and Republican politicians alleged industries were being boycotted to the detriment of retirees' savings.

"For the first time in recent history, sustainable fund departures outpaced arrivals" in the three months September, Chicago-based researcher Alyssa Stankiewicz wrote.

Three new funds were launched while thirteen closed in this category. One existing fund took on the "sustainable" label and four other funds moved away from that mandate.

Morningstar's definition includes open-ended and exchange-traded vehicles with a "clear and prominent commitment" to sustainability, impact or environmental, social and governance (ESG) factors.

The slowdown came on the heels of 27 launches and 9 closures in the previous quarter, and compares with a record 44 launches in the fourth quarter of 2021.

Investors pulled money out of U.S. funds in general in the period, but sustainable funds fared worse than conventional peers, registering their fourth consecutive quarter of outflows for a contraction of 0.85% versus 0.02% for the total fund universe. More conventional funds were launched than closed in the third quarter.

"Although the motivations behind outflows cannot be perfectly quantified, many factors are in play," Stankiewicz said. "These include rising energy prices, high interest rates concerns about greenwashing, and political backlash."

(Reporting by Isla Binnie)