Canada defies sustainable fund slowdown

Global net flows to sustainable funds slowed in the first quarter, but Canada was an outlier as inflows surged, according to new data from Morningstar.

In the first quarter, global sustainable funds generated US$29 billion of net inflows, which was down from US$37.7 billion in the previous quarter, the firm reported.

“Inflows were lower in most regions as macroeconomic pressures, including rising interest rates, inflation, and a looming recession, continued to weigh on investors,” it said.

Yet in Canada, net flows rose to US$963 million, which represented an 89% jump from the previous quarter.

Morningstar reported that almost all of the inflows came in January and February, with March accounting for just 4% of the sales activity.

Alongside the positive net flows, Canadian sustainable fund assets also rose by 8.7% in the first quarter, Morningstar said, to about US$30.5 billion.

Equities, which remain the largest category of sustainable funds in Canada, saw the strongest asset growth (9.5%), followed by fixed-income funds (6.6%) and alternatives (1.1%).

In terms of new products, one sustainable mutual fund and three new ETFs were launched in the first quarter, Morningstar said.

While this represented an increase from the fourth quarter, “the appetite for product launches has been low for both sustainable and traditional investment products in the past year. This trend may be partly attributed to concerns of a potential global recession,” it noted.

On a global basis, sustainable fund assets reached US$2.74 trillion at the end of the first quarter, up 7.5% from the previous quarter.

Europe continues to dominate the sustainable fund landscape, accounting for 84% of assets, followed by the U.S. at just 11%.

However, Morningstar noted that last quarter the European market “saw a significant reduction of new sustainable fund launches, amid regulatory uncertainty and fears of greenwashing accusations.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.