- Asset Class: Sustainable funds took £11.01bn over H1 2024, compared to conventional funds outflows of £6.63bn, with sustainable equities netting £8.71bn.
- Classification: Equity US funds were the most popular sustainable classification, netting £9.38bn, followed by Bond Global Corporates LC and Equity Europe ex UK.
- Active v Passive: Sustainable equity flows over H1 were £3.64bn to passive funds and £5.07bn to active.
- Fund manager: BlackRock saw inflows of £11.61bn, overwhelmingly to equities.
Sustainable versus Conventional
Assets and Flows by Asset Class
Chart 1: Sustainable Asset Class AUM, 2014 to H1 2024 (£bn)
Source: LSEG Lipper
Since 2014, UK sustainable assets held in mutual funds and ETFs have increased from £32.93bn to £242.53bn—or 737%. By way of comparison, UK fund assets in total have risen from £1.19trn to £2.19trn, or by 184%, over the same period.
In 2014, sustainable fund assets comprised 2.77% of overall fund assets. This has now risen to 11.08%. As can be seen from chart 1, there was a period of accelerated growth in sustainable assets between 2018 and 2021—something not mirrored in the growth of assets overall.
Equity funds make up most assets, at 59.84%, followed by mixed assets (20.82%) and bonds (19.34%). Alternatives, money market and real estate funds make up less than 1% each of sustainable assets. The asset mix has changed between now and five years ago, when equities commanded a larger share of the pie (72.55%), bonds (13.91%), and mixed assets (11.97%).
Chart 2: Five-year quarterly flows, to H1 2024 (£bn)
Source: LSEG Lipper
Sustainable fund flows headed consistently up between Q4 2019 and Q2 2021, where they peaked at £17.22bn, from where the trend has been downwards, albeit still positive for each quarter.
What changed in 2021? There had been (and continues to be) an argument that sustainable investing doesn’t mean sacrificing performance. Up to the early part of the decade, that argument was being won on the back of return figures: in a low-rate, growth-driven environment, ESG funds, which tended to have more of a growth bias in the dominant equity space, were tending to outperform their conventional peers. However, as rates rose and some investors got nasty shocks from venturing into certain areas of the market such as alternative energy, there was a pull-back—even if the figures remain positive for the market overall.
There has only been one quarter when equity flows have been less that half of the total (Q3 22, at 29.1%). The average over the five years is 68.7%, with the latest quarter being 72.93%.
Bond flows peaked absolutely and in relative terms in Q2 21—the overall peak for flows—when they attracted £3.64bn.
Another notable thing in chart 2 has been the sharp drop off in mixed assets flows from Q2 22, and the asset class has been one of the few to suffer from net redemptions, notably Q3 23-Q1 24. Mixed-asset funds’ market share peaked at 15.6% in Q4 21, and in Q2 24 was just 4.9%. We looked at this issue in June 2023, and suffice it to say that the dial doesn’t seem to have greatly shifted since.
Chart 3: Asset Class Flows, ESG v Conventional, H1 2024 (£bn)
Source: LSEG Lipper
Despite negative flows for equities overall (-£458m), sustainable equity funds took in £8.71bn over the first half of the year, up from Q1’s £6.1bn—making it the most successful “green” asset class. This was followed by bonds, where sustainable funds netted £2.41bn for H1, compared to £5.37bn for conventional bond funds.
At 31%, sustainable funds’ share of fixed income flows has slipped back from Q1’s 41.9%, though is still up on 2023’s 28.1%. Overall, Q2 flows have been relatively poor, at £530m, compared with £2.64bn for conventional bond funds. It’s not clear what’s driving this reversal from Q1’s stronger relative performance.
There was relatively little movement with other sustainable asset classes over H124: alternatives (£5m); mixed assets (-£33m); money market (£2m); and real estate (-£0.25m).
Sustainable versus Conventional Flows
by Classification
Chart 4: Largest Positive Sustainable Flows by LSEG Lipper Global Classification, H1 2024 (£bn)
Versus Conventional Equivalents
Source: LSEG Lipper
The three top-selling classifications for H1 24 are the same as they were in Q1 24: Equity US (£9.38bn/£1.45bn conventional), Bond Global Corporates LC (£1.05bn/£1.66bn), and Equity Europe ex UK (£981m/£1.71bn).
Bond Global Corporates funds EUR and USD have sold a combined £644m, with Bond Global USD and GBP (the latter with conventional flows being negative) adding a further £870m, maintaining their position in the top 10 table from Q1. As was the case in Q1, the flows to Equity Real Estate are largely to one tracker fund, with these flows bucking the negative direction of conventional flows. Nevertheless, one swallow doesn’t make a summer, and the popularity of a single fund doesn’t make for a revival in sustainable real estate.
We noted in the Q1 report that the strong flows to Mixed Asset GBP Aggressive funds hadn’t translated into sustainable flows for the classification, which had seen outflows of £22m over the quarter. Over the half year, sustainable aggressive flows have recovered, netting £294m, albeit rather overshadowed by the £6.1bn flows to the classification’s conventional funds.
Just outside the table, sustainable Equity Japan funds are nibbling at the popularity of the classification overall, taking £204m, or 15.5% of the total inflows for the classification.
Chart 5: Largest Negative Sustainable Flows by LSEG Lipper Global Classification, H1 2024 (£bn)
Versus Conventional Equivalents
Source: LSEG Lipper
In Q1, Equity Global sustainable funds saw the heaviest redemptions. This has now reversed, with these funds taking £243m for H1. Equity UK, which made a rare foray into positive territory in Q1, now finds itself leading redemptions, with sustainable funds shedding £2.28bn (conventional: -£11.59bn). Much of this was accounted for by redemptions from one fund’s share class.
And, while Bond Global Corporates are enjoying tailwinds, this hasn’t carried over to Bond GBP Corporates, which suffered redemptions of £184m, compared to outflows of £2.82bn for their conventional equivalents.
This is well ahead of the redemptions suffered by other sustainable classifications, the next being Equity Theme – Alternative Energy (-£427m). Other sustainable themes have also suffered: Water (-£90m) and Agribusiness
(-£90m).
Equity Asia Pacific ex Japan, Equity Asia Pacific and Mixed Asset GBP Balanced funds shed £419m, £99m, and £323m respectively, although these sums were overshadowed by the conventional flows from these classifications.
Bond USD Government is the only classification in chart 5 where conventional and sustainable flows converge significantly, with redemptions of £90m to sustainable funds, where their conventional peers attracted £349m.
Active versus Passive
Chart 6: Sustainable Bond (LHS) and Equity (RHS) Active v Passive Asset Class Flows, H1 2024 (£bn)
Source: LSEG Lipper
FT journalist Katie Martin, writing in the paper’s Unhedged blog recently, pondered “when the last humans are roaming the earth, picking through dystopian urban hellscapes in search of food, they will still manage to argue about the relative merits and demerits of passive investing”. Which made me smile, however ruefully. H1’s data is unlikely to resolve this, as there’s a lot of volatility between active and passive, particularly around equity, the largest asset class.
Sustainable equity flows over H1 break down to £3.64bn passive, £5.07bn active. However, allocations swing round wildly over the period, with Q1 passive/active being £948m/£5.24bn, and for Q2, £2.69bn/-£163m (chart 6, RHS). What’s remarkable, isn’t any particular trend but, if anything, the lack of one.
There is a clearer preference for sustainable passives within bonds, as index trackers netted £1.59bn over H1, and active strategies £827m. Passive fixed income has let for the past four quarters. Much of this is being taken by global corporate bond trackers, which reflects the trend highlighted in chart 4.
Flows by Asset Manager
Chart 7: Largest Positive ESG Flows by Promoter, H1 2024 (£bn)
Source: LSEG Lipper
In a move that will surprise precisely no one, BlackRock extended its Q1 lead (£7.15bn) to £11.61bn over H1. This breaks down to: equity (£9.88bn); bond (£1.58bn), and mixed assets (£148m). Remarkably, its bond flows alone are only £31m less than the entire H1 flows of the second- and third-placed firms on the table. As mixed-assets flows are rather subdued for the period, BlackRock’s £148m here is the largest in the asset class.
Mercer is a new entrant this quarter, with £509m in equities, as is UBS with a total of £488m, Dimensional (£186m), and Close Group (£147m).
Usually, there would be a smattering of alternatives flows in the top-10 table; however, for H1 24 there are none. Likewise, real estate.
Note that this report has narrowed its focus from broad ESG funds—those which indicate some form of ESG strategy in their fund documentation—to a smaller set of sustainable funds, defined as all SFDR Article 9 funds plus Lipper Responsible Investment Attribute funds reduced to those containing indicative sustainable keywords in the fund name.
