Canadian investors withdrew a record $2.1 billion from sustainable funds in the second quarter of 2024, with most of that loss attributed to a single fund, Morningstar said in a report released Thursday.
These record outflows more than offset the $193.3 million in positive flows from the first quarter, the research firm said in its latest Canada Sustainable Funds Landscape Report.
A single fund — BMO MSCI USA ESG Leaders Index ETF (TSX: ESGY) — accounted for 90%, or $1.9 billion, of the outflows in the second quarter.
The Desjardins Sustainable Canadian Corporate Bond Fund gained more than $452 million — the largest inflow during the three-month period. It was one of seven new sustainable funds to hit the market in the second quarter, alongside six new balanced funds from National Bank.
For the first time in at least five years, both active and passive sustainable funds saw net outflows in the quarter, the report noted. Moreover, almost half of sustainable funds saw net outflows in Q2, Morningstar said.
Despite overall outflows, Canadian sustainable funds grew in assets, topping $60 billion in the second quarter, compared to about $50 billion in the previous quarter.
From an asset-class perspective, only fixed-income sustainable funds saw positive flows, collecting $22.2 million in Q2, the report said. This marked the fifth consecutive period of inflows for the segment and the fourth consecutive quarter of net outflows for all other asset classes.
Industry concentration among firms offering sustainable funds also decreased, Morningstar said. Industry leader NEI Investments’ sustainable fund market share dropped to just below 20%, down from more than 50% in 2019, the report said.
Meanwhile, iShares gained the most market share, rising to 8.5% from 2.8% between the first and second quarters of 2024. The asset manager places fifth among sustainable fund asset managers, based on assets, the report said.
Also on Thursday, Franklin Templeton Canada announced the proposed merger of the Templeton Sustainable Global Balanced Fund into the Franklin Brandywine Global Sustainable Balanced Fund, which has the same investment objective, risk classification and fee structure.
In the Morningstar report, Franklin Templeton accounts for 4.8% of sustainable fund market share in Canada, putting it in seventh place.