In Q1 2025, sustainable investment funds experienced net outflows of about USD 8.6 billion globally, a stark contrast to the USD 18.1 billion inflows of the previous quarter. Europe, the largest market for ESG funds, saw its first outflow since 2018, totaling USD 1.2 billion. This downturn signals a shift in market sentiment, exacerbated by a stricter regulatory environment and skepticism about green sector profitability. Investors are gravitating towards lower-risk sustainable fixed income assets. Consequently, many European asset managers are revamping strategies, including renaming funds to align with new regulations aimed at combating greenwashing.
Sustainable investment funds faced a historic quarter, with global net outflows of $8.6 billion in Q1 2025, marking a stark shift from recent inflows.
The first recorded outflow in Europe since 2018 reflects a changing sentiment; European asset managers confront intensified challenges amid a stricter regulatory environment.
Declining investor confidence indicates a strategic shift towards lower volatility. There is a growing preference for sustainable fixed income assets over ESG equities.
As 335 sustainable funds renamed themselves to comply with new EU regulations against greenwashing, the industry's credibility faces significant challenges in this changing climate.
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