- Europe holds 85% of global sustainable funds’ net assets, reaching EUR 2.2 trillion, with 34% domiciled in Luxembourg
- Sustainable funds now account for 19% of the European investment fund market, a significant increase from just 6% in 2019
- Sustainable funds saw a 20.2% growth in 2023, outperforming conventional funds which grew by 16.9% in Europe
- Equity remains the most important asset class, making up 61% of sustainable fund assets
- Growth in new sustainable fund numbers slowed in 2023, with 350 new sustainable funds launched, down from 616 in 2022
The third edition of the European Sustainable Investment Funds Study analyses the current state of sustainable investing in Europe covering recent trends and regulatory developments. Europe remains the leader in sustainable finance, now accounting for 85% of global sustainable funds’ net assets, totalling EUR 2.2 trillion, according to the study, produced by ALFI in partnership with Morningstar and Tameo. Despite economic uncertainties, sustainable fund net assets grew by 20.2% in 2023. Luxembourg remains the dominant investment hub for sustainable funds, hosting 34% of these assets.
Global net assets in sustainable funds reached EUR 2.6 trillion by the end of 2023, an increase of EUR 1.5 trillion since 2019. After remarkable growth in 2020 (42%) and 2021 (88%), growth slowed significantly to 3% in 2022, reflecting the broader slowdown in the asset management industry. However, momentum returned in 2023, with net assets growing by 19%.
Britta Borneff, Chief Marketing Officer at ALFI, said: “Europe continues to lead the global sustainable investment fund market, driven by a robust regulatory framework, including the SFDR, and strong investor demand. The study highlights both the growth and resilience of Europe’s sustainable investment funds. We hope these insights support decision-making, drive progress in sustainable finance, and help build a more sustainable and equitable future.”
Anne Estoppey, Research Analyst, Tameo, added: “The dynamic landscape of sustainable finance calls for continuous insights to sustain its remarkable growth. The study provides an essential state-of-the-market analysis, tracking key trends, comparing sustainable fund strategies to conventional ones, and delivering data-driven intelligence for investors, policymakers, and stakeholders.”
Additional key findings of the study were:
- Sustainable funds growth outperforms conventional funds: Assets in European sustainable funds have grown by 20.2% to reach EUR 2.2 trillion in 2023, representing 19% of the European investment fund market. This compares to only 6% in 2019. Net inflows meanwhile were down to EUR 77 billion, with only EUR 4 billion of inflows into active strategies, compared to EUR 73 billion in 2022. Conventional fund inflows were however dwarfed - EUR 14 billion of inflows, and assets grew only 16.9%.
- New fund launches decline: 350 new sustainable funds were launched in 2023, down from 616 in 2022 and 760 in 2021. In addition, the reclassification of funds was almost neutral, 251 funds reclassified as sustainable while 237 funds reclassified as conventional investment funds.
- Average fund size rose across the board: Since 2019, the average fund size for both conventional and sustainable funds has grown, reaching EUR 370 million and EUR 416 million respectively in 2023. Sustainable funds have maintained a larger average size since 2020. As size increases, investment managers can take advantage of economies of scale enhancing their operational efficiency.
- Passive strategies continue to gain momentum: Demand for passive strategies in European sustainable funds continued to rise in 2023, with their market share growing from 21% of net assets in 2021 to 29% by the end of 2023. Passive strategies also saw a growth rate of 38.8%, significantly outpacing the 14% growth of active strategies, a trend also observed in conventional funds.
- 5 key players continue to dominate: Compared to conventional funds, the sustainable funds market is more concentrated, with the top five investment managers accounting for 26% of the total net assets of sustainable funds, versus 21% for the top five in conventional funds. Concentration varied greatly by domicile, with Luxembourg’s share of the top five representing 35% of total net assets by the end of 2023, versus Ireland, the second-largest hub of sustainable funds, which had the top five investment managers of passive funds managing 75% of total net assets.
- Impact funds remain niche – Despite a CAGR of 31% since 2019, impact funds accounted for only 18% of the net assets in sustainable investment funds by the end of 2023, down from 27% in 2021. This slowdown mirrors the decline in demand for impact fund strategies, although net flows follow a similar pattern to sustainable fund flows, peaking in 2021 before declining in the subsequent years.
- Article 8 funds dominate: 58% of funds are classified as Article 8 funds, while 4% are Article 9. These figures remained unchanged in 2022. Article 6 funds, meanwhile, represent 39% of funds, up 1% from 2022.
- Sustainable ETFs gain slightly larger market share than conventional funds: For the first time, sustainable funds have a greater market share of ETFs than conventional funds – 15% versus 14%.
Please refer to the study for further details on recent trends, regulatory developments, the outlook as well as interviews covering:
- Building financial literacy together: collaborative paths to sustainable investment, LSFI
- The road to robust ESG integration: addressing key challenges and investor expectations, Franklin Templeton
- Investing with purpose: how impact investing is tackling global challenges and delivering results, Tameo
- The art of the possible: why real estate will lead the way in the energy transition, Fidelity
- Enhancing sustainable finance: the path for SFDR, labels and investor clarity, ALFI
ALFI will be presenting the findings in a webinar with Morningstar and Tameo at 14.30 on 5 February 2025. Please register here to join.
Download the European Sustainable Investment Funds Study.
Download the press release in pdf.
For more information, please contact:
Peregrine Communications
ALFI@peregrinecommunications.com
ALFI
Luis Salerno
ALFI Head of Communications Luis.Salerno@alfi.lu