As bond and equity markets rallied in May, flows into ESG bond funds tripled over the previous month, while demand for equity funds continued softening, according to ESG research released Friday by Barclays Research.
Still, the share of ESG fund assets as a percentage of the wider universe “has remained roughly constant” year over year, the special report said. Based on ESG and thematic funds launches in 2023, that suggests that ESG momentum “is weathering structural headwinds” related to both the energy crisis and political pressures,” the report said.
In May, ESG-labeled bond funds had net inflows just over $3 billion, a threefold increase from April levels. Those inflows were similar to inflow increases for the broader bond fund universe, the report said. Despite high redemptions for emerging market credit and Euro Aggregate Bond index funds, year-to-date inflows into ESG bond funds “remain comfortably positive at nearly $15 billion,” with gains in global corporate bonds and emerging market credit funds.
ESG bond fund inflows were roughly four times the level seen in 2022, but one-third of 2021 levels, which were roughly $44 billion, according to the research.
Equity funds had a different story in May, slowing to $700 million after inflows of $7 billion in April. By contrast, the broader market in May saw the end of redemptions while inflows reached their highest levels since January, due to an AI and tech rally and ongoing demand for emerging markets, the report said.
Inflows fell for global equity funds along with continued lack of demand for U.S. funds in May while European ESG fund outflows reached the highest level since April 2022, the Barclays researchers found.
The $16 billion in ESG equity flows year-to-date as of the end of May 2023 “remains the weakest YTD levels seen in the past four years,” the report said.
The Barclays research report is based on data from mutual funds and ETFs that report flows and AUM to data services firm EPFR.