Sustainable Investing: Trends, Outflows, Assets

Sustainable funds posted record outflows, while conventional funds held steady in the second quarter of 2024. But total outflows don’t tell the full story—massive withdrawals from one fund overwhelmed the investment universe.

Morningstar analysts dug into shifting investor sentiment and fund performance across Canadian sustainable funds. Our research spanned Morningstar data on funds with CAD 61 billion in combined assets. Here’s what we found.

Get the breakdown of sustainable investing trends in the full report.

This report considers sustainable funds identified by the Canadian Investment Funds Standard Committee as one of six nonmutually exclusive responsible-investment approaches as described in the CIFSC Responsible Investment Identification Framework.

Investors withdrew a record CAD 2.1 billion from sustainable funds in the second quarter of 2024, more than offsetting the positive flows from the first quarter. This marked the largest period of net outflows for sustainable funds in at least five years.

In contrast, the broader Canadian fund universe saw marginal outflows of only CAD 614.0 million.

A single fund accounted for 90% of the net outflows. BMO MSCI USA ESG Leaders ETF (ESGY) lost CAD 1.9 billion in the second quarter due to a withdrawal from an institutional investor.

But the fund was not alone. Both active and passive sustainable funds saw outflows in second-quarter 2024, a first in at least five years. Passive had more outflows than active: CAD 1.6 billion versus CAD 442.0 million.

Fixed income proved the exception. Sustainable bond funds collected net new money for the fifth consecutive quarter. They collected CAD 22.2 million as investors continued to lock in attractive yields.

Overall sustainable fund assets topped CAD 60 billion in the second quarter, an all-time high. Strong performance offset net outflows and increased assets by CAD 10.5 billion in the second quarter.

Although 54% of equity funds saw net outflows, BMO MSCI India ESG Leaders ETF (ZID) also gained assets and added CAD 165.2 million in the second quarter.

Asset managers offering sustainable funds in Canada remain concentrated. Ten firms represent 85.9% of the sustainable funds’ universe.

For the first time, industry leader NEI Investments’ market share dropped below 20%, down from over 50% in 2019. IShares gained the most market share, rising from 2.8% to 8.5% between the first and second quarter of 2024.

Sustainable fund performance was relatively strong in the second quarter. Over 50% of sustainable funds ranked in the top half of their respective categories. A respective 38% and 30% of sustainable allocation and equity funds ranked in their categories' top quartiles.

Sustainable Canadian equity and emerging-markets equity funds did particularly well, while US equity funds saw mixed results. Broad sustainable US equity funds ranked in the top half of the peer group, while sustainable US dividend and income equity funds ranked in the bottom half. Overall, these funds continued to post mediocre returns over the past year.

Sustainable fixed-income funds struggled in the second quarter, and their trailing year returns show it.

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• Top and bottom 10 sustainable funds in inflows.
• Top 10 asset managers in fund flows.
• New sustainable fund launches.
• Sustainable fund performance by category.