Sustainable Investing Monitor-April 1, 2025

Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs 

Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,334 funds/share classes as well as ETFs, (1,112 mutual funds/share classes and 222 ETFs), based on Morningstar classifications, closed the month of March with $339.0 billion in net assets versus $355.6 billion as of the prior month-end.  This represents a month-over-month decline of $16.5 billion in net assets, or a 5% drop during a month when long-term funds posted a total return decline 2.95%, the S&P 500 dropped 5.63% and the Bloomberg US Aggregate Bond Index eked out a narrow 0.04% gain. 

Attributable to capital depreciation and net outflows, mutual funds gave up $10.9 billion, for a month over month decrease of about 4.5% while ETFs dropped almost $6 billion in net assets, or 5%.  Using a simple back of an envelope calculation, focused sustainable funds experienced outflows in March estimated at about $6 billion.      

New Sustainable Fund Launches

There were no new listings of focused sustainable mutual funds or ETFs during the month of March, and none during Q1 2025. Excluded are any new share class listings.  This continues a drought affecting new sustainable fund listings that started after May of 2023.

At the same time, a total of 20 funds/share classes were closed or liquidated, including the Lord Abbett Climate Focused Bond Fund which liquidated in March.  The $25.3 million fund with its nine share classes, or 45% of closures, apparently couldn’t gain much traction since its launch in April 2020.    

Green, Social and Sustainability Bonds Issuance (to Q1 2025) 

During the first three months of the year, the supply of green bonds dropped relative to the volume registered in the first quarter of 2024.  According to SIFMA (whose data tends to understate global issuance of sustainable bonds), global green bond issuance in Q1 was $225.5 billion, versus $270.4 billion during Q1 of last year.  At the same time, first quarter issuance in the US, at $47.7 billion, gained some momentum relative to last year when issuance reached $44.1 billion.   

Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices

A selected set of six sustainable stock and bond indices mostly underperformed their conventional counterparts in March. This was against a backdrop of retreating equities (S&P 500 Index: -5.6%) and mixed fixed income returns (Bloomberg US Aggregate Bond Index: 0.04%) amid a flurry of headlines around the imposition of tariffs, weakening sentiment among households, consumers as well as small businesses, and mixed fixed income returns given a modest steepening in the Treasury yield curve.

Five of the six selected sustainable indices track domestic and foreign equities that are screened with an emphasis on company level ESG scores and exclusions based on specific business activities and exposure to ESG controversies.  These indices posted returns in March ranging from 0.63% to -6.62%, trailing their conventional counterparts within a range starting at 14 basis points to a high of 124 basis points.  The sixth benchmark, tracking fixed income securities that are screened on a similar basis, was up 0.04% and matched the performance of its conventional counterpart.  

Year-to-date and trailing 12-month performance results delivered by sustainable indices were also generally lower than their conventional underlying indices, with only two sustainable indices managing to exceed the results achieved by their counterparts.  Of note is the MSCI Emerging Markets Select Index that established a wide 6.2% lead over the trailing 12-months, benefiting from significant stock overweighting in three companies, Taiwan Semiconductor, Tencent Holdings and Alibaba, as well as some variations in country weightings.