Europe continues to lead sustainable finance, holding 85% of global sustainable funds’ net assets, according to the third edition of the European Sustainable Investment Funds Study, produced by ALFI in partnership with Morningstar and Tameo. The study found that the net assets in sustainable fund products, based on Morningstar’s definition of sustainable investment products, have reached almost EUR 2.2 trillion at the end of 2023. Luxembourg remains at the forefront, hosting 34% of these assets.
This report aims to inform and inspire, offering data-driven insights into the dynamic sustainable investment fund landscape. We thank our partners for their collaboration and hope this study contributes to advancing sustainable finance and shaping a more sustainable and equitable future.
In this section, we present some interesting findings steaming from the study, starting with a look at sustainable funds in the global context. We also present the European sustainable funds landscape, including market share growth and new product launches and the main fund domiciles.
Download the study and get an overview of sustainable funds by domicile, explore the growth trajectory of sustainable funds compared to conventional ones, the impact of new fund launches and reclassifications and more.
Europe (EU27, Switzerland, Norway, the UK, and Liechtenstein) continues to lead the way in sustainable investment funds, holding an impressive 85% of the global EUR 2.6 trillion in sustainable net assets by the end of 2023 (Data retrieved as of March 2024 from the Morningstar open-end funds and ETFs database. Please refer to the methodology section for more details).
In contrast, North America (North America includes funds domiciled in Canada and the United States) and the Asia & Pacific (the Asia & Pacific region includes Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand, and Turkey) regions hold 11% and 3% of global sustainable net assets, respectively.
Sustainable funds account for 19% of the investment fund market in Europe, yet they represent just 1% of total net assets in North America and 2% in the Asia & Pacific region.
Following an impressive growth period from 2019 to 2021, the European sustainable funds segment has continued to grow, albeit at a slower pace. Overall, the sector has grown from less than EUR 1 trillion at the end of 2019 to EUR 2.2 trillion at the end of 2023. Sustainable funds’ net assets grew by 20.2% in 2023, on a year-on-year constant sample*.
In contrast, conventional funds’ assets remained relatively stable, growing at a 0.9% CAGR since 2019 to reach EUR 8.8 trillion at the end of 2023.
*In the total sample of sustainable funds (i.e., non-constant sample), net assets grew by 11.0% in 2023. In 2022, 212 funds were reclassified as sustainable but were not included in the constant sample of sustainable funds for that year. Their inclusion in the constant sample in 2023 accounts for the higher growth observed in the constant sample compared to the total sample of sustainable funds.
By the end of 2023, there were over 30,000 European funds.
However, the launch of new funds across Europe experienced a downturn, with fewer than 2,000 launched in 2023. In particular, 350 funds out of the 1’887 new funds launched in 2023 categorise as sustainable. This figure represents approximately half of the sustainable funds that were launched in 2021 and 2022, with 760 and 616 new funds, respectively. In 2023, the impact of reclassifications on the total number of sustainable funds was nearly neutral, with 251 funds reclassified as sustainable investment funds and 237 funds reclassified as conventional investment products.
Luxembourg remains the largest European hub for sustainable investment funds, hosting over a third (34%) of sustainable funds’ net assets, with a growth of 14.1% in 2023*.
Ireland ranks as the second-largest hub for European sustainable investment funds, with 16% of sustainable net assets domiciled in the country. Notably, it holds a significant share (40%) of sustainable funds that follow a passive investment strategy. In 2023, net assets of sustainable funds domiciled in the country grew by 30.2%, fuelled by the growth of passive strategies.
France also maintains a strong position in the sustainable funds market, accounting for 11% of net assets, while its share is smaller for conventional funds (3% of net assets). Although sustainable net assets in the country grew by 12.7% in 2023, net flows were slightly negative in 2023 (EUR -6 billion).
Overall, the top five fund domiciles for sustainable funds in Europe, including the United Kingdom and Switzerland, hosted 80% of net assets as of the end of 2023**.
* In the total sample of sustainable funds, net assets of funds domiciled in Luxembourg, Ireland and France grew by 5.2%, 21.9% and 7.5%, respectively.
**Other domiciles include Austria (2% of sustainable net assets), Belgium (3%), Denmark (1%), Finland (1%), Germany (5%), Italy (2%), Liechtenstein (less than 1%), the Netherlands (2%), Norway (less than 1%), Portugal (less than 1%), Spain (1%), and Sweden (3%).
The year 2023 marked significant progress in sustainable finance, with a record number of new regulations and policies introduced globally, reflecting a growing commitment to ESG principles. Despite market downturns, sustainable investment funds in Europe, the largest market for such assets, showed resilience and continued to expand. Luxembourg retained its position as the leading hub for European sustainable funds, hosting over a third of them by net assets.
The EU has played a key role in advancing sustainable finance through the SFDR. However, inconsistent application and interpretation of the regulation have led to the declassification of numerous funds, causing investor uncertainty and slowing market growth.
To unlock the full potential of sustainable finance, efforts must focus on clarifying regulations and improving access to standardised, reliable data on investee companies. These steps will create a more transparent and supportive environment for sustainable investments.
Looking ahead, collaboration and regulatory improvements will be essential for Europe to strengthen its leadership in sustainable finance and drive meaningful progress toward a greener future.