After years of boom, investors withdrew around 30 billion US dollars from climate-focused investment funds in 2024. This marks the first net outflow since at least 2019, according to data from financial services provider Morningstar. The development underscores the growing challenges for the industry despite global efforts to combat climate change.

The managed assets of climate funds had risen to a record level of 541 billion USD in the previous four years. For the first time, however, the volume decreased and fell to 533 billion USD, as positive market valuations could not fully offset the withdrawals.

According to Morningstar, inflows into climate funds peaked at $151 billion in 2021, before turning into net outflows of $29 billion last year. This development coincided with increasing economic uncertainty, particularly regarding the election victory of Donald Trump, who has announced plans to reverse climate policy measures of the Biden administration, such as the Inflation Reduction Act (IRA).

The political uncertainty surrounding Trump and his climate policy has unsettled investors," explained Hortense Bioy, head of the sustainable investment department at Morningstar. Right-wing populist campaigns against sustainable investments have also affected sales figures.

While funds with a broad climate focus, including green bonds and low-carbon strategies, continued to see demand, investments in capital-intensive segments such as renewable energy and green technologies suffered from capital outflows. Low-carbon funds achieved an average return of 13.16 percent in 2024, outperforming the 12.08 percent of global large-cap funds. In contrast, clean energy funds lost 5.35 percent in value.

Ben Constable-Maxwell, Head of Impact Investing at M&G, explained that rising interest rates have significantly impacted companies in the renewable energy sector. "Many companies represented in traditional climate funds have struggled to operate successfully," said Constable-Maxwell.

Morningstar data also show an increasing market cleanup: in 2024, 81 climate funds were closed or merged – a significant increase compared to the 49 closures in the previous year. At the same time, the number of new startups fell to 74, after a peak of 295 new funds was recorded in 2022.

Despite the capital outflows, asset managers continue to emphasize strong demand from institutional investors, particularly pension funds, investing in single assets rather than mutual funds. A recently issued green bond for USD 500 million was six times oversubscribed.

The long-term demand for climate finance remains high. According to a study by the Climate Policy Initiative, an annual financing need of up to $6.7 trillion is expected by 2030. Between 2018 and 2022, global climate finance already doubled to $1.46 trillion, with less than half coming from the private sector.