Only two regions – Canada and Australasia (Australia and New Zealand) – continued to raise new money for sustainable funds in the first three months of the year.

With Donald Trump’s anti-ESG policies looming over U.S. and global markets, investors pulled US$8.6 billion from sustainable mutual funds and exchange-traded funds (ETFs) in the first quarter, according to a report from Morningstar Sustainalytics. By contrast, the previous quarter saw inflow of US$18.1 billion. Investors in the United States led the charge, withdrawing more than US$6 billion in the first three months of 2025, the 10th consecutive quarter of outflow.

European investors, too, joined the general retreat. Redemptions – when investments are returned to the investor, usually as cash – in Europe were US$1.2 billion in the quarter, the first period of outflow since 2018. Asian sustainable funds also amassed net withdrawals in the same period.

Yet, Canada and Australasia had positive inflow of about US$300 million each. It’s too early to say whether this is a long-term trend, but both regions seem to be coming back from periods of significant withdrawal: CAD$2.5 billion for Canada last year and US$740 million for Australasia in 2023.

The divergent trend lines suggest that both regions are recovering from fallback by so-called ESG tourists, or fund companies with only a passing commitment to sustainable investment but who entered the category two or three years ago to test the market. What’s left is a thinning core of funds committed to long-term responsible investing.

Sucheta Rajagopal, a veteran responsible-investment adviser based in Toronto, says a number of mainstream fund companies and asset managers set up new sustainable funds in 2022, hoping to cash in on a global ESG boom triggered by the substantial support for renewable energy and cleantech under the Biden administration and in the European Union. “There was a lot of bandwagon-jumping,” she says. “There were a lot of firms and fund managers that didn’t really believe in [sustainable investing], but because it was the flavour of the moment, they launched these products . . . They were just grabbing onto it.”

Now, many of these funds are closing or rebranding. Creation of new funds has slowed dramatically since the heyday three years ago.

Surviving funds believe in ESG

The surviving funds are led by managers who “genuinely believe in ESG as a risk-management tool and in sustainability and climate change and that companies paying attention to those things are going to end up doing better,” Rajagopal says.

The Morningstar data “underscores the strength of Canada’s financial ecosystem, where non-bank fund companies like NEI, alongside independent and credit union advisers, create a more genuinely sustainability-focused environment,” John Bai, chief investment officer for NEI Investments, said in an email.

The Canadian sustainable funds industry is dominated by three major players: NEI Investments, Desjardins and National Bank. Collectively, they accounted for 58% of sustainable fund assets in Canada in 2024. NEI and Desjardins are financial cooperatives; National Bank, based in Montreal, is the smallest of the big chartered banks.

Advisers recommending funds from these companies have more leeway to provide a strong case for sustainability than their peers at the large Bay Street banks and Wall Street ETF companies. They can talk their clients through the ups and downs of sustainable investing while supporting their clients’ choice to invest in a socially and environmentally minded way. Most credit unions and caisse populaires widely market their sustainable fund offerings, and advisers receive better training on ESG options than advisers at banks.

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Hortense Bioy, head of sustainable investment research for Morningstar Sustainalytics, agrees that this is a strong factor driving the Canadian inflow data. In some jurisdictions, she says, this is achieved through the hard path of regulation rather than the soft path of adviser guidance. “We’re seeing the same trend in France, where investors are required by law to hold at least one ESG fund in their savings account,” she said in an email.

But Paul Calluzzo, professor of finance at Queen’s University in Kingston and a member of the university’s Institute for Sustainable Finance, says preferences on issues like ESG still play only a part in how investors choose funds, even for those who are more sustainability-minded. Financial performance based on risk and return plays a major role. “The number one factor that we look at in fund flows is performance,” he says.

Underperformance has contributed to the outflows in sustainability funds, especially those investing in renewable energy or cleantech. Many of these funds have underperformed their conventional peers since 2022, when interest rates caused shares in these sectors to plummet.

Investors shift to bond funds

In Canada, fixed-income funds attracted 87% of the Canadian inflow in the first quarter. Equity and other funds attracted the rest. It appears that the risks posed by a second Trump presidency have driven many sustainability-focused investors to lower-risk bond funds.

But Rajagopal says that sustainable investors have a strong preference for ESG bond funds that include green and impact bonds, especially those with a climate theme. “People are saying we want to finance these sorts of things that are more positive than equity investments, where a lot of publicly traded companies have limits on what they can really do about climate.”

The retreat in sustainable investing in the United States looks like it’s going to get worse before it gets better. In Europe, it may only just be starting. But for Canada, Australia and New Zealand, there are encouraging signs that the ESG sightseers are hitting the exits, leaving the sustainability locals to carry on.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

The post ‘ESG tourists’ are leaving, but sustainable funds are still growing in Canada appeared first on Corporate Knights.

Given the poor performance of green energy stocks and the chorus of opposition against anything viewed as “woke,” it’s easy to get lost in the narrative that the shine has worn off sustainable investing. But that’s not what I’m seeing. The negative sentiment doesn’t match the tremendous progress that is being made.

Sustainable investments soared in 2020 and 2021, and that was certainly when the shine was on. They mostly outperformed traditional investments, and we also saw tons of new funds launch, giving sustainable investors more options. It was a different story in 2022. Sustainable investments underperformed as oil prices spiked and a pronounced backlash against ESG (investing that optimizes environmental, social and governance factors) emerged, especially in the U.S. Comparatively few new ESG-labelled funds have been launched in the last two years.

Despite record oil-company profits and a surge in military share prices stemming from instability in the Middle East, most sustainable investments have quietly outperformed in 2023. But big financial firms like BlackRock aren’t talking about it anymore. Most of the media attention has been focused on the ESG blowback while ignoring the successes. We used to be concerned about greenwashing, but now it seems that many companies are deliberately staying quiet in what some are calling greenhushing – the practice of downplaying or keeping quiet about their sustainability initiatives.

Green stocks have come back to earth

That’s not to say there haven’t been lows. The worst-performing area for sustainable investors was certainly in renewable energy. Clean energy stocks performed tremendously in 2020 and early 2021, but in hindsight this was clearly a bubble.

Companies became way too over-valued, and share prices that once surged have settled back down. It didn’t help that tech companies in general have had a rough time since 2022, and now higher interest rates are negatively affecting utilities with high up-front capital costs for large green energy projects.

Those of us who invested in 2019 or earlier are still doing well, but I feel terrible for people who jumped on the green energy bandwagon in 2020. Now that prices have fallen back to more reasonable levels, I think investors should take another look to see if now is a good time to buy.

Negative sentiment hasn’t affected capital flows

Despite the negative sentiment and falling share prices of green energy stocks, the inflows of capital are still tremendous. According to reports from Bloomberg New Energy Finance and the International Energy Agency, green themes like renewable energy, green buildings and electric cars are seeing double-digit growth in capital investments.

The green economic transition is unstoppable. We can argue whether it’s happening fast enough to avoid the worst-case climate scenarios, but there is no denying the investment flows that continue to pour into the green economy.

A big reason for the increased money flow was the passing of the historic Inflation Reduction Act in 2022. We saw the benefits in 2023 with huge growth in green jobs in the U.S. Even better, the majority of these jobs are in red states. It’s hard to argue against the green transition when your livelihood (or the livelihood of someone you love) is dependent on it.

In Canada, the climate policy conversation, sadly, has circled back to attacks on the carbon tax. Whatever your politics, I think we can all agree that a carrot is more popular than a stick.

Anti-ESG funds have stalled

There was so much pushback against sustainable investing in 2022 that we saw the launch of several anti-ESG funds with ticker symbols like YALL and DRLL. You’ve probably heard of Republican presidential candidate Vivek Ramaswamy, but did you know that in early 2022 he co-founded Strive Asset Management, which offers “anti-woke” investment funds?

Although these funds got off to a roaring start with lots of initial investment, they haven’t seen nearly the capital flows that actual ESG funds experienced. I tracked one fund – the Constrained Capital ESG Orphans ETF – which invested in companies that are usually excluded by sustainable investors. It launched in May 2022 but failed to attract investors and closed, or “de-listed,” in June 2023.

Language has been standardized

I’ve been frustrated by people misusing and conflating various sustainable investment strategies. Divestment is different from ESG, which is different from impact investing. Thankfully, we now have a partnership between the CFA (Chartered Financial Analyst) Institute, the UN Principles for Responsible Investment and the Global Sustainable Investment Alliance to harmonize definitions of sustainable investment approaches.

Check out quick descriptions of the five approaches in the glossary (below).

Now’s the time to act

Amidst the economic turmoil this year, green sprouts are growing. People are increasingly recognizing that our economic system is broken and are actively looking for solutions. One of the easiest solutions to implement is shifting your investments in a more sustainable direction.

It’s still a challenge to pick the good funds amidst the greenwashers, so look to these lists for inspiration. Make sure you consider the risks before carefully deciding how much to invest in each category.

Corporate Knights reviewed 2949 funds and rated the equity funds deemed responsibly managed in four categories, with 40 funds listed below. Download the complete list.

FUND NAME	% market weight covered by Corporate Knights ratings*	Weighted rating**	Final score***	Holdings date
INTERNATIONAL
Invesco S&P International Developed Dividend Aristocrats ESG Index ETF (IIAE)	95.9%	20%	100%	2023-09-30
Franklin ClearBridge Sustainable International Growth Fund	93.7%	19%	95%	2023-08-31
iShares ESG MSCI EAFE Leaders Index ETF (XDLR)	94.9%	17.7%	85.2%	2023-09-30
BMO MSCI EAFE ESG Leaders Index ETF (ESGE)	95%	17.7%	83.3%	2023-09-30
Invesco S&P International Developed ESG Tilt Index ETF (IITE)	94.8%	17.7%	82.3%	2023-09-30
Wealthsimple Developed Markets EX North America Socially Responsible Index ETF (WSRD)	92.4%	17.4%	81.3%	2023-09-30
iShares ESG Aware MSCI EAFE Index ETF (XSEA)	96.9%	17.3%	79.4%	2023-09-30
TD Morningstar ESG International Equity Index ETF (TMEI)	94.9%	17.2%	78.4%	2023-09-30
NEI International Equity RS Fund	92.2%	17%	75.4%	2023-08-31
Desjardins SocieTerra International Equity Fund	92.4%	16.9%	74.5%	2023-09-30
GLOBAL
AGF Global Sustainable Growth Equity	95.5%	27.7%	100%	2023-03-31
Black Diamond Impact Core Equity Fund	92.5%	23.6%	99%	2023-06-30
NEI Environmental Leaders Fund	96%	21.7%	98.5%	2023-08-31
Mackenzie Betterworld Global Equity Fund	92%	21.7%	98.1%	2023-03-31
IA Clarington Inhance Global Equity SRI	95.8%	21.4%	97.6%	2023-03-31
VPI Sustainability Leaders Pool	75.5%	21.1%	97.1%	2023-09-30
Mackenzie Greenchip Global Environmental All Cap Fund	88.8%	20.6%	95.7%	2023-03-31
CI Global Climate Leaders Fund	87.6%	20.5%	95.2%	2023-03-31
Desjardins SocieTerra Positive Change Fund	89.4%	20.5%	94.8%	2023-09-30
Global Iman Fund	100%	18.7%	93.8%	2023-06-30
U.S.
Invesco ESG NASDAQ 100 Index ETF (QQCE)	99.3%	21.3%	100%	2023-09-30
Desjardins SocieTerra American Equity Fund	98.8%	20.9%	99.5%	2023-09-30
Invesco S&P 500 ESG Index ETF (ESG)	99.7%	17.7%	92.6%	2023-09-30
Invesco S&P 500 ESG Tilt Index ETF (ISTE)	99.8%	16.9%	91.1%	2023-09-30
Invesco S&P US Total Market ESG Index ETF (IUCE)	99.1%	16.8%	90.6%	2023-09-30
Mackenzie Bluewater US Growth Fund	97.7%	16.5%	89.6%	2023-03-31
iShares ESG Aware MSCI USA Index ETF (XSUS)	100%	16.1%	88.6%	2023-09-30
Invesco S&P US Total Market ESG Tilt Index ETF (IUTE)	99%	16.1%	88.1%	2023-09-30
iShares ESG MSCI USA Leaders Index ETF (XULR)	100.1%	15.8%	87.1%	2023-09-30
BMO MSCI USA ESG Leaders Index ETF (ESGY)	99.7%	15.8%	86.6%	2023-09-30
CANADIAN
iShares Jantzi Social Index ETF (XEN)	97.9%	21%	99.1%	2023-09-30
Desjardins SocieTerra Canadian Equity Fund	92%	18.2%	95.5%	2023-09-30
RBC Vision QUBE Fossil Fuel Free Low Volatility Canadian Equity Fund	89.1%	18%	94.6%	2023-06-30
iShares ESG MSCI Canada Leaders Index ETF (XCLR)	92.8%	17.8%	93.8%	2023-09-30
BMO MSCI Canada ESG Leaders Index ETF (ESGA)	95.8%	17.4%	92%	2023-09-30
TD Morningstar ESG Canada Equity Index ETF (TMEC)	95.5%	17.2%	90.2%	2023-09-30
Invesco S&P/TSX Composite ESG Index ETF (ESGC)	94.9%	17%	88.4%	2023-09-30
Invesco S&P/TSX Composite ESG Tilt Index ETF (ICTE)	93%	16%	84%	2023-09-30
Invesco S&P/TSX 60 ESG Tilt Index ETF (IXTE)	97.8%	15.9%	81.4%	2023-09-30
CIBC Sustainable Canadian Equity Fund	95%	15.7%	78.7%	2023-06-30

*Sum of a given fund’s underlying constituents’ weights that are rated by Corporate Knights
**The weight of a constituent of a given fund multiplied by its rating by Corporate Knights, summed up for all of that fund’s underlying constituents
***The score of a given fund (based on the percent-ranking calculation approach) derived by comparing its weighted rating against that of other funds in the same category

GLOSSARY – Five common approaches:

Screening
Applies strict rules to decide what companies are in or out of a fund. Negative screening – also known as divestment – is common for “sin sectors” like tobacco, weapons and (increasingly) fossil fuels.

ESG integration
Considers environmental, social and governance factors within investment decision-making to lower exposure to financial and reputational risks. ESG-integrated funds don’t screen out particular companies.

Stewardship
This can include engagement with a company’s senior leadership on a wide range of ESG issues and voting for shareholder resolutions.

Thematic investing
Selects only companies that contribute to a sustainability “theme” like clean energy, water or green buildings.

Impact investing
Investing with the intention to generate measurable social and/or environmental impact.

Tim Nash is the founder of Good Investing.

The post Sustainable investments had secretly great year appeared first on Corporate Knights.

Emotions have a strong influence on purchasing decisions. More often than we realise, we make these decisions based on emotions rather than rational calculations and facts. It is well documented that financial decisions are also influenced by emotions.

In low mood periods people are more pessimistic about firms’ prospects, which is associated with decreases in stock market prices.

Because of the growing popularity of assets with a strong focus on environmental, social and governance (ESG) goals – companies with corporate policies that encourage them to act responsibly – we wanted to look at what role emotions can play in determining people’s preference for sustainable investments.

Why do investors choose sustainable investments?

There are several reasons why people may want to invest in sustainable assets. Some may be “social signalling” – they like to talk about how their investments are socially responsible.

Another reason can be found in how someone was raised. An individual’s propensity to invest in socially responsible assets is influenced by having parents owning similar assets or growing up in a family that values environmental sustainability.

The “warm glow effect”, which is a good feeling experienced through the act of giving, also explains why investors choose ESG assets. Investors experience positive emotions when choosing sustainable investments, irrespective of the investments’ impact.

But does an investor’s mood influence their preference for sustainable investments? There are several reasons why emotions might affect where people put their money.

The role of mood in our investment decisions

There are two competing theories when it comes to examining the role of mood and sustainable investment.

The first is based on the idea that sustainable assets are generally less risky. In this sense, assets that are considered completely or mostly sustainable have been shown to outperform less sustainable assets in crises, as investors see them as more trustworthy and having fewer structural, legal and reputational risks.

This theory is also based on the idea that a lower mood leads to more risk-averse behaviour. That is, when someone is sad, depressed or angry they tend to become more cautious when making investment decisions and choose investments with lower risk.

A second and competing theory is based on the idea that a positive mood promotes prosocial behaviours and greater altruism. Investors with lower mood tend to focus on themselves and less about others. As such, they have less preference for sustainable investments.

Happier investors, on the other hand, may be more altruistic and favour sustainable investments because it benefits others (for example, community, workmates and the environment).

Our research has tested these theories, documenting evidence consistent with investors’ greater risk aversion.

More specifically, we found that a worse mood is associated with greater investment in sustainable assets. This is arguably due to a greater risk aversion pushing investors to favour sustainable investments that they perceive as less risky.

How to identify sustainable funds and test investors’ mood?

To identify sustainable versus non-sustainable funds, we used the Morningstar Sustainability rating. This rating is intended to help investors better understand and manage total ESG risk in their investments. A higher sustainability rating is associated with a lower ESG risk.

To capture the change in the average mood of households for a given month, we used a metric called “onset and recovery” (OR). This metric measures the change in the monthly percentage of seasonally depressed individuals who are actively experiencing symptoms.

Higher OR indicates an increase in symptomatic depression cases and, therefore, lower mood on average. For the Northern Hemisphere, OR is high during autumn (September), low during spring (March), and moderate during summer and winter. Southern Hemisphere countries experience the same pattern in reverse.

We contrasted OR levels in relation to investment in sustainable equity mutual funds in 25 countries over the 2018–2021 period.

In general, mutual funds with high sustainability ratings tended to attract more capital, suggesting that investors value sustainable investments.

More importantly, however, we found that when there was an increase in the percentage of seasonally depressed individuals, capital inflows into high-sustainability funds increased relative to low-sustainability alternatives (an extra 0.070% per month or 0.84% per year).

For an average mutual fund with a size of US$100 million, this additional capital inflow equates to $840,000 per year.

This negative association is consistent with a risk-aversion interpretation, supporting the conclusion that lower mood leads to more sustainable investments as investors perceive them as being less risky.

Our study comes with a caveat. Given the features of our data, we cannot test if the investors’ mood improves after investing in sustainable funds. This would not only confirm that sustainable investments are a safer option, but also that investing in them will boost people’s mood.

So, is sadness good for the environment and society?

Our research explores a potential channel that could explain people’s preference for sustainable investments.

Our findings suggest that, when it comes to investing in sustainable equity mutual funds, risk aversion triggered by negative moods was a more likely cause of increased investing than the potential happiness connected to their pro-social behaviour.

This does not imply that sadness is good for the environment or society, it rather confirms that investors consider sustainable investments a safer option.

Adrian Fernandez-Perez is a senior research fellow in finance at the Auckland University of Technology.

Alexandre Garel is a researcher in finance at Audencia.

Ivan Indriawan is a senior lecturer in finance at the University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The post Is sadness good for sustainable investing? appeared first on Corporate Knights.

As evidence, take Tiff Macklem. Appointed last June as the 10th governor of the Bank of Canada, his job is to ensure the stability of Canada’s financial system. With the bank’s tradition of political independence, and most of his seven-year term still to come, Macklem can afford to confront the climate threat head-on. 

In a November speech, Macklem declared that “climate change and the transition to low-carbon growth will have profound impacts on virtually every sector of the economy … so we need to understand the implications of climate change for economic growth and inflation.”

Politicians can trade barbs about climate issues, but financial institutions, as stewards of other people’s money, work hard to mitigate financial risks. “Transition risks are often mispriced, and physical risks are generally underappreciated,” Macklem noted. By filling in that knowledge gap, we could save billions in damage and eliminate an existential threat to Canada’s financial stability. 

The 2008 financial crisis pushed climate issues into the background. But the current pandemic, says Macklem, has “focused the public’s attention on extreme global risks and the value of resilience.” A key indicator is the flow of money into ESG funds – portfolios of equities or bonds that prize environmental, social and governance goals equally with profit. According to Macklem, ESG funds in 2020 raised twice as much money as in 2019, which itself tripled the 2018 amount. Canadian ESG issuance has also jumped, Macklem noted, from less than $2 billion in 2017 to almost $13 billion by mid-November.

To get ahead of the climate crisis, Macklem says the Bank of Canada is developing a multi-year research plan focused on climate risks to the macroeconomy and the financial system. It’s also collaborating on transition-mitigation strategies and sustainable finance with global partners such as the International Monetary Fund, the Financial Stability Board, and the Paris-based Network for Greening the Financial System. It’s essential, says Macklem, to be “in the room where it happens.”

And finally, the BoC is “working to bring this analysis home to Canada,” Macklem notes. In November, the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) announced a pilot project working with a few bank and insurance company volunteers, such as TD, RBC, Manulife and The Co-operators. They’ll be developing climate scenarios that will help financial institutions better understand their climate risks under changing conditions. The Bank and OSFI will publish a report, planned for the end of 2021, sharing details on the specific scenarios, methodology, assumptions and key sensitivities.

In a statement, Jeremy Rudin, superintendent of OSFI, said, “Everyone, including the financial sector, will have to adjust to the new reality of climate change. The shape of that new reality will depend on many complex issues and on much that remains uncertain. This pilot project will allow us to refine our focus on the prudential aspects of climate change.”

Knowledge and transparency are power tools, Macklem says: “Scenario analysis will help financial institutions better understand their exposures to transition risks, and this will increase their confidence in their ability to disclose them.”

Then even the politicians will have to pay attention.

The post Canadian banks start doing the math on climate change risks appeared first on Corporate Knights.