Britain's asset management industry has dramatically scaled back its creation of new dark green investment funds, with launches plunging to their lowest level since records began. This startling retreat from the most stringent category of sustainable investing comes amid growing regulatory complexity and mounting costs for fund groups.
The Sharp Decline in Sustainable Fund Launches
New data reveals that only 34 new sustainable funds entered the UK market during the first half of 2024, representing the poorest six-month performance since Morningstar began tracking this sector. This marks a dramatic 45% decline compared to the same period last year, when 62 such funds were launched.
The slowdown has been particularly pronounced for Article 9 funds, commonly known as dark green funds, which pursue specific sustainable objectives as their primary goal. Asset managers are increasingly hesitant to commit to the rigorous standards and reporting requirements these products demand, especially given the evolving regulatory landscape surrounding ESG investing.
Regulatory Pressure and Market Realities
Victoria Hasler, head of fund research at Square Mile, attributes this trend to multiple factors creating a perfect storm for sustainable fund creation. The Financial Conduct Authority's ongoing anti-greenwashing rules, combined with increased scrutiny from both regulators and consumers, have made fund groups more cautious about their sustainability claims.
"We have seen a definite slowdown in the number of new funds being launched," Hasler confirmed. "The regulatory environment has become much more challenging, and firms are being increasingly careful about how they classify their funds and what claims they make."
This regulatory pressure coincides with weakening investor demand for sustainable products amid economic uncertainty and competing investment priorities. The combination has forced asset managers to reconsider their product development strategies, with many opting to repurpose existing funds rather than create new dedicated sustainable vehicles.
The Broader Impact on Sustainable Investing
The retreat from dark green fund launches reflects a broader recalibration within the sustainable investment sector. Fund groups are navigating complex reporting requirements while managing investor expectations in a market where definitions of sustainability continue to evolve.
This trend raises important questions about the future trajectory of ESG investing in the UK. While the decline in new launches doesn't necessarily indicate a reduction in overall sustainable assets under management, it does suggest that asset managers are adopting more cautious approaches to product development in this category.
The situation presents both challenges and opportunities for the investment industry. On one hand, reduced fund creation may slow the expansion of sustainable investment options available to UK investors. On the other, it could lead to more robust and carefully constructed products that better withstand regulatory scrutiny and deliver on their promised sustainability outcomes.
As the regulatory framework continues to mature and market conditions evolve, the coming months will be crucial in determining whether this slowdown represents a temporary pause or a more fundamental shift in how asset managers approach sustainable product development.
