Europe restrictions limit global sustainable funds

The global sustainable investment fund industry is experiencing a slowdown in the launch of new funds this year, due to declining performance, investor withdrawals, and tighter regulatory rules. In Europe, the second quarter recorded the lowest number of fund launches ever, with only 13 new funds compared to 35 last year, while 64 funds were closed, the highest since the beginning of 2023. Launch activities also decreased in the United States and China, with Canada and Australia halting new fund launches for two consecutive quarters. The downturn is attributed to political criticism, weak returns, and the difficulty in classifying funds as "sustainable" due to strict European legislation and increased regulatory scrutiny. Nonetheless, net flows into sustainable investment funds saw a slight increase, with $3.7 billion received in the second quarter, driven mainly by renewed demand for passive and fixed-income funds, along with encouragement for investing in the transition to a low-carbon economy. However, ongoing challenges related to performance and oversight continue to impact the market.

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