Investors’ appetite for US-domiciled sustainable funds has waned ahead of President Donald Trump moving into the White House for his second term. Morningstar’s latest annual ‘US Sustainable Funds Landscape’ report noted that US sustainable funds suffered net outflows every quarter of 2024 collectively amounting to US$19.6 billion – an increase from US$13.3 billion in outflows in 2023. Conventional funds received US$740 billion of net new money. Morningstar pointed to high interest rates which penalised some areas of the sustainable investment market, such as clean energy stocks, while climate funds experienced their first year of outflows, with redemptions hitting US$2 billion. “2024 was a turbulent year for ESG funds, with the increased politicisation of ESG issues, continuously high interest rates, greenwashing concerns, and a general preference for conventional strategies in a bull market,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. Despite these outflows, assets in sustainable funds rose to US$344 billion last year, which represents 6.3% annual growth. “The outlook for US sustainable funds in 2025 is very uncertain,” said Bioy. “Recent weeks have seen companies backtrack on ESG commitments and net zero alliances review their purpose. Under the new Trump administration, we may see litigation pressures exacerbate ‘greenhushing’, where companies downplay their sustainability efforts. All these developments bring new challenges to investors interested in sustainability-focused investments.”
