US ESG Funds See $3 Billion Net Inflow in Q2, Led by AI Power Grid ETFs

In the second quarter of this year, US ESG funds experienced a net inflow of $3 billion. This marks the first such inflow since the third quarter of 2022, attributed to the changing demand for investments in power grids and energy infrastructure driven by the spread of artificial intelligence (AI). The total assets under management for US ESG funds have reached a record high of approximately $400 billion. ESG funds use environmental, social, and governance factors as investment criteria. In recent years, there have been outflows due to political controversies and poor returns, with $4.3 billion exiting at the beginning of this year alone. However, passive sustainable funds saw an inflow of $3 billion, while active funds experienced an outflow of $7.3 billion. At the center of this inflow is the First Trust Nasdaq Clean Edge Smart Grid Infrastructure ETF, which attracted $5.5 billion and has a one-year return of 32%. As of May, ESG-focused funds have gathered approximately $3 billion, marking two consecutive months of net inflows. However, it is difficult to definitively conclude that ESG recovery is part of a broader trend, as some ETFs are exposed to natural gas utilities, which has sparked controversy. Whether the fund flows from power grid ETFs will spread to other ESG product categories will need to be confirmed in subsequent quarterly reports.

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