Following the publication of Morningstar’s Q3 2024 Global Sustainable Fund Flows report, we zoom in on New Zealand’s Sustainable Fund Flows to Q3 2024.

Adopting the same methodology, we leverage Morningstar’s ‘sustainable investment’ assessment applied to our global database of >357,000 open ended and exchange traded funds. The sustainable investment tag identifies more than 42,000 funds internationally, representing over USD 3 trillion in assets.

New Zealand sustainable fund universe

Out of approximately 800 open ended and exchange traded funds domiciled in New Zealand, we identify 44 sustainable Investment funds that meet the requirements of Morningstar’s ‘Sustainable Investment’ fund tag. These are funds that:

  • Claim to focus on sustainability, impact, or environmental, social, and governance factors in their prospectus or other regulatory filings
  • Have a sustainability objective and/or use binding ESG criteria for investment selection

Funds that employ only limited exclusions or only consider ESG factors in a non-binding way are not considered to be a Sustainable Investment product.
To align with Morningstar’s methodology, we have excluded feeder funds and funds of funds, of which there are approximately 40 domiciled in New Zealand with the sustainable investment tag.

New Zealand sustainable investment fund launches

The number of funds launched annually in New Zealand ramped up considerably in the past five years, peaking at a high of 12 in 2021, up from earlier years where 1-2 launches per year were common. 2024 to date has seen launches drop to these earlier levels with 2 launches so far this year. The drivers of this tailing off are multi-factorial, but a key factor is likely to be market maturation, as most New Zealand fund providers have established their suites of responsible investment products that previously may not have been built. As we see in the next section, this does not appear to be related to flows these funds are attracting.

Fund flows

Figure 1: Timeline of New Zealand domiciled sustainable investment fund launches since 2013. Source: Morningstar Direct

New Zealand sustainable investment fund flows

Bucking trends in some other markets, quarterly sustainable fund flows in New Zealand have remained positive since Q4 2021. This period has seen headwinds for sustainable funds in North American and Japanese markets, where redemptions have outstripped inflows over several quarters. In New Zealand, net inflows have hovered between NZ 50-200 million per quarter, with the notable exception of Q2 2024.

Fund flows

Figure 2: New Zealand quarterly sustainable fund flows. Source: Morningstar Direct

The particularly high Q2 2024 inflows are the result of several sustainable funds receiving abnormally high inflows in the month of April. Morningstar understands this is the result of several strategic allocation reviews that were implemented at the start of the 2024 tax year.
These relatively consistent inflows in New Zealand are notable given the significant drop-offs seen in other markets. In Europe, Sustainable Fund Flows have contracted to approximately USD 10 billion net inflows in Q3, which is less than 8% of the flows seen during the dizzying heights of 2021 which saw quarters exceeding USD 100 billion. This period coinciding with the introduction of SFDR which appeared to trigger a deluge of new (or adapted) sustainable funds.

Meanwhile the US market has experienced aggressive net outflows since 2022, coinciding with the ‘ESG backlash’ which included legal threats and action against several major asset managers by Republican Attorneys General. Asia and Australia have observed mixed flows, swinging between net positive and net negative over the past several quarters. In this context, one might consider that Sustainable Funds in New Zealand have enjoyed relatively consistent interest over the past 3 years.

Fund flows

Figure 3: Global Sustainable Fund Flows in USD, sourced from the Morningstar Q3 2024 Global Sustainable Fund Flows Report.

Total sustainable fund assets

With continued inflows, coupled with organic capital growth, New Zealand sustainable funds have seen total asset value grow markedly over the past three years. Between Q3 2021 to Q3 2024 total asset have more than trebled, from NZD 1.5 billion to NZD 5.4 billion

Fund flows

Figure 4: Total assets of New Zealand Sustainable Funds quarterly. Source: Morningstar Direct

Fund flows

Figure 5: Total Assets of New Zealand Sustainable Funds annual. Source: Morningstar Direct

These figures paint a healthy picture of the New Zealand sustainable fund landscape and demonstrate trends that are differentiated, and appear more resilient, than other markets. We look forward to observing how trends in the New Zealand sustainable fund market continue to evolve in future.