Asset flows into European climate funds dropped 6.5% in the first nine months of the year, to $303 billion, as a challenging macro environment weighed on investor sentiment for the product segment.

Climate funds suffered under a challenging macro environment this year, though according to Morningstar, they have proven to be resilient. In comparison, global fund assets declined 24% in dollar terms over the same nine months.

European asset managers have prioritised stocks better prepared for the transition to a low-carbon economy, the index provider said.

‘Climate-conscious’ products made up 37% of climate fund launches over the period, followed by climate solutions funds (31%) and clean energy funds (17%). 

The number of mutual funds and ETFs with a climate-related mandate rose 32%, climbing to 1,140 globally as of the end of September, as investors sought new approaches to manage climate risks in portfolios and take advantage of opportunities arising from the climate transition space.

Hortense Bioy, global director of sustainability research at Morningstar, said: “All the talks at COP27 about stepping up climate finance serve as a reminder of the role investors play in the transition to a low-carbon economy.  

“The scale of capital needed for the transition is significant. COP 27 will likely spark even more investor interest in addressing climate change in their portfolios, both to mitigate climate risk and to invest in climate solutions. With so many climate-aware fund options, understanding the range of strategies is an important first step in positioning portfolios to align with net-zero goals”. 

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