Global backlash drives worst ESG fund redemptions on record

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🗞️ Driving the news: Sustainable investment funds experienced their worst quarter on record, with US$8.6 billion withdrawn globally in Q1 2025, according to Morningstar (see sustainability performance)
• The sharp reversal follows US$18.1 billion in inflows during Q4 2024, signaling growing investor unease amid rising geopolitical tensions and backlash against ESG principles
• Notably, Europe’s ESG funds posted their first net outflows since Morningstar began tracking the market in 2018

🔭 The context: The dramatic outflows coincide with US President Donald Trump’s return to office, which has intensified political opposition to climate-related and diversity initiatives
• New executive orders and legal risks surrounding ESG and DEI (diversity, equity, and inclusion) are pushing US asset managers to scale back references to sustainable investing, affecting global investor confidence and product strategies

🌍 Why it matters for the planet: The retreat from ESG-aligned investments risks undermining global climate and social progress, particularly as financial flows are critical to funding the transition to a low-carbon economy
• Decreased commitment from major asset managers may slow momentum on net-zero targets and weaken accountability frameworks essential for sustainable development

⏭️ What's next: Asset managers are expected to continue consolidating ESG offerings, engage in rebranding, and pursue more cautious product development strategies
• European investors, in particular, may intensify scrutiny of US-based fund managers' genuine commitments to climate goals
• Regulatory shifts in the US and EU will likely shape market dynamics in the coming quarters, with new guidelines or clarifications anticipated later in 2025

💬 One quote: “We’re seeing further signs of consolidation, rebranding activity, and cautious product development, amid an intensifying ESG backlash in the US which is now also noticeably affecting sentiment in Europe,” — Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics

📈 One stat: US$8.6 billion was withdrawn from ESG funds globally in Q1 2025 — the largest quarterly redemption since Morningstar began monitoring ESG fund flows

See on illuminem's Data Hub™ the sustainability performance of Morningstar, and its peers BlackRock, and Amundi 

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