Sustainable Funds Outperformance 2024
Sustainable funds reached a significant milestone in 2024, with assets under management (AUM) surging to $3.5 trillion. Despite a noticeable slowdown in inflows, these funds posted strong performance, delivering a median return of 1.7%, outperforming traditional funds, that earned a return of 1.1%.
A report from Morgan Stanley’s Institute for Sustainable Investing highlights the growing resilience of sustainable investments, even in periods of market volatility. Inflows into sustainable funds recorded $20 billion in the first half of 2024, a slower pace compared to previous years. The consistent outperformance of these funds compared to their traditional counterparts has reinforced their growing importance in investment strategies.
Sustained Performance Despite Slowing Inflows
The inflows into sustainable funds have slowed, accounting for 0.6% of year-end 2023 AUM, but the funds’ performance has remained strong. Sustainable funds achieved a median return of 1.7%, aided by their heavy exposure to equities. Large-cap stocks, which make up 57% of sustainable fund holdings, played a crucial role in boosting performance, with equities outperforming other asset classes.
Over the past five years, sustainable funds have outperformed traditional investments by 4.7%, solidifying their appeal to investors. A £100 investment in sustainable funds in December 2018 would have grown to £135 by June 2024, offering superior returns compared to traditional investments.
Outflows and Market Trends
In May 2024, significant outflows of £12 billion was recorded in sustainable funds, impacting the overall inflow pace. However, market trends suggest that these funds will continue to grow. Sixty percent of survey respondents anticipate that the value of sustainable strategies will increase over the next two years. Investors remain confident in the long-term benefits of sustainable funds, viewing them as essential for managing risks and gaining exposure to decarbonisation and environmental goals.
Long-Term Outlook
Looking forward, sustainable funds are expected to remain prominent in global markets. With their lower volatility and complementary return profiles, these funds are well-positioned to benefit from emerging trends in renewable energy, resource efficiency, and electrification. Sustainability is increasingly shaping market performance, and these funds are likely to capitalise on long-term trends that prioritise environmental goals and lower carbon emissions.
Sustainable funds continue to offer a compelling investment business case, with steady growth and consistent outperformance of traditional peers. Their resilience in fluctuating market conditions, combined with their focus on sustainability, positions them as key drivers of future investment strategies.
Sources
Sustainable Funds Reach Record $3.5 Trillion AUM in 2024: Morgan Stanley Report – ESG News