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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.
Chart 1: Sustainable Asset Class AUM, 2014 to FY 2024 (£bn)
Source: LSEG Lipper
Since 2015, UK sustainable assets held in mutual funds and ETFs have increased from £34.25bn to £260.15bn. Since 2019, sustainable assets have grown 418%. By way of comparison, UK fund assets in total have risen from £1.92trn to £2.36trn, or by 123%, over the same period.
In 2015, sustainable fund assets comprised 2.73% of overall fund assets. This has risen to 11.04%. 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, although this growth has slackened subsequently.
Equity funds make up most sustainable assets, at 73.19%, followed by bond (14.92%), mixed assets (11.08%), and MMFs 1.04%. Alternatives and real estate funds make up less than 1% each of sustainable assets. The asset mix has changed between now and 2019, when equities stood at 62.78%, mixed asset (20.14%), and bonds (17%). So, rather than sustainable investing diversifying from equities over time, the figures—in the UK at least—show an increasing concentration on this asset class.
Chart 2: Five-year quarterly flows, to Q4 2024 (£bn)
Source: LSEG Lipper
The somewhat tepid start for the UK’s SDR fund labelling regime has not been a boost to sustainable fund flows that many in the industry had hoped, it seems.
The fourth quarter signifies the first time that the UK market has seen net aggregate outflows (-£2.24bn). This was driven by large redemptions from equity funds of £3.54bn—again, the first time this has happened, as equity flows have driven sustainable investing over the years. Worst hit was an Equity Global tracker product, which shed more than £2bn. What’s more, this is more than collateral damage in a general exodus from the asset class, as total net flows for the quarter were £6.62bn.
Mixed assets were less unusual, in also being in the red to the tune of £196m. Up until the start of the decade, this was a relatively popular asset class, with a brace of asset managers leading the field. However, post-Covid has seen a reversal of fortunes, and sustainable mixed asset funds have failed to regain their footing thus far.
On the other side of the equation, bond flows recovered from Q3’s redemptions to net £963m over the quarter—the best since Q1 2024—followed by MMFs (£469m—the highest since Q3 2022). Alternatives and real estate nudged the dial in a positive direction with quarterly flows of £14m and £43m, respectively.
Chart 3: Asset Class Flows, ESG v Conventional, FY 2024 (£bn)
Source: LSEG Lipper
Despite the unprecedently negative Q4 for sustainable equities, they still finish the year as the most successful asset class, netting £12.05bn, with their conventional equivalents shedding £10.83bn. Sustainable bonds came in a distant second, with inflows of £3.43bn, as their conventional peers attracted £10.38bn.
MMFs netted £327m over the year (conventional: £11.16bn); real estate £88m (-£1.56bn); and alternatives £14m
(-£837m). Mixed assets were the only asset class to be in the red, by £665m, as their conventional peers attracted £3.87bn.
Overall, sustainable funds took £15.24bn for the year (£14.92bn ex MMFs), compared to £12.19bn (£1.03bn ex MMFs) for conventional funds over the year. The equivalent figures for 2023 were £15.26bn (£14.53bn) for sustainable funds and -£72.18bn (-£31.9bn) for conventional funds. While sustainable fund flows have held steady year on year (in aggregate, at least), they haven’t been amplified in the strong rebound from 2023’s heavy redemptions for conventional funds.
Chart 4: Largest Positive Sustainable Flows by LSEG Lipper Global Classification, FY 2024 (£bn)
Versus Conventional Equivalents
Source: LSEG Lipper
Equity US is the best-selling sustainable classification, as it has been throughout the year, with inflows of £13.5bn for the full year—exceeding the entire annual take for sustainable equities by almost £500m. This is way ahead of sustainable Equity US flows for 2023, which were £3.9bn (conventional flows for the same period were -£4.33bn).
However, flows to the classification are pretty much flat from the third quarter, with inflows of just £462m over Q4. Conventional flows over the year were a more modest £6.04bn. However, £4.44bn of this came in over Q4. One could speculate as to whether this is a result of investors adjusting their positioning in the wake of the US election, but it would be hard to find a proof point. The contrast with the previous three quarters is, nevertheless, striking.
Second-placed Equity Europe ex UK comes a long way behind, with net flows of £2.61bn, with just £114m to conventional equivalents. It’s a market that’s sat in the US’ shadow, beset by concerns over low growth and fragmentation, so it’s perhaps a surprise to see it so high up the rankings. It’s also very much focused on one fund.
Sustainable Bond Global funds across local currency—GBP and USD denominations—had a decent year, netting £2.54bn collectively, with conventional flows for all also in positive territory.
Equity Sector Real Estate Global is interesting in that this is the only one on the chart that suggests a rotation from conventional funds (-£543m) into sustainable funds (£668m), likely propelled by solid demand for building that meet sustainable standards.
Chart 5: Largest Negative Sustainable Flows by LSEG Lipper Global Classification, FY 2024 (£bn)
Versus Conventional Equivalents
Source: LSEG Lipper
It was quite a reasonable Q4 for Equity UK, with inflows of £342m, benefitting from an unusually strong quarter for the classification overall. However, that wasn’t enough to reverse the effects of the rest of the year, with FY flows at -£3.31bn. Overall, this looks a lot like collateral damage, with outflows of £17.58bn for conventional funds.
Also, there was a continuation of the negative sentiment for Equity Theme—Alternative Energy, with redemptions of £1.67bn. That’s considerably worse than last year, despite lower rates, and it’s possible this is to some degree a response to anticipated policy shifts.
Like with Equity UK, it’s hard not to see sustainable Mixed Asset GBP Balanced’s fortunes (FY -£947m) as being an artifact of the fortunes of the wider classification (-£5.46bn), as indeed seems the case with Equity Asia Pacific ex Japan (respectively -£855m and -£4.04bn).
That’s not the case for Equity Global, which had a horrendous Q4. The classification had bounced from eleventh second place between Q2 and Q3. However, in Q4, investors pulled £2.81bn from these funds (although conventional global funds stayed well in the black), and over the year sustainable Equity Global funds shed £168m while their conventional peers netted £5.74bn. This was a stark contrast to 2023, when Equity Global was the most popular sustainable classification, attracting £6,29bn, while their conventional equivalents lost £648m.
When we started publishing this report, in Q3 2021, outflows were largely small, and functions of what was happening with the classifications in general. That can still be the case with some classifications, but it’s clear that investors are now making market-moving decisions to pull money from specific classifications, such as Equity Global and US, based on their sustainability characteristics, as well as allocating to them.
Chart 6: Sustainable Bond (LHS) and Equity (RHS) Active v Passive Asset Class Flows, FY 2024 (£bn)
Source: LSEG Lipper
Passive bond funds rebounded from the previous quarter’s redemptions to post inflows of £392m, while their active peers attracted £571m. Over the full year, sustainable passive bond funds attracted £1.84bn while their active peers netted £1.59bn. Sustainable active bond funds therefore seem to be holding up rather better than their conventional peers against the continuing encroachment of passive funds.
Meanwhile, both active and passive sustainable equity funds saw their first quarter of negative flows (respectively
-£1.8bn and -£1.74bn). Over the full year, active sustainable equity funds netted £8.68bn and their passive peers £3.37bn, with active’s lead being spurred by a particularly strong first quarter.
Chart 7: Largest Positive ESG Flows by Promoter, FY 2024 (£bn)
Source: LSEG Lipper
BlackRock extended its Q1-3 flows of £16.55bn to £20.55bn. This breaks down to equity (£18.03bn), bond (£2.2bn), and mixed assets (£322m). It’s ahead of all competitors in all three asset classes.
Northern Trust has the second-highest bond inflows, at £630m, and HSBC the second highest equity flows, at £1.49bn. Vanguard has the second highest mixed asset flows for the year, at £238m.