July marked the second consecutive month of net new deposits for sustainable funds, though they gathered considerably less than the $492 million notched in June, according to the firm's latest figures. [L1N2YZ1R8]

Funds termed "sustainable" by Morningstar include those which integrate environmental, social and corporate governance (ESG) factors into their investment processes.

While "demand for sustainable funds remained tepid in July," Morningstar said in the report that "their recent weakness isn't surprising as investor appetite has soured across the board."

Investors withdrew $13 billion overall from U.S. long-term mutual funds and ETFs in July, the fourth month in a row of outflows, according to Morningstar.

It is the longest streak of net withdrawals since Morningstar began tracking the data in 1993, as investors contend with stock market volatility and concerns about inflation and interest rate hikes.

After a bumper year in 2021, funds which consider ESG criteria struggled during the market sell-off earlier this year, with widespread underperformance and softer demand. [L1N2YN1B9]

Sustainable funds took in $8.9 billion during the first seven months of the year, a sharp drop from the $45.1 billion they attracted during the same period in 2021, Morningstar said.

These funds gained new prominence last year as extreme weather, events highlighting social injustice, and shareholder activism brought ESG issues to the top of the agenda of investors. [L1N2SM2EH]

(Reporting by Cole Horton in New York; Editing by Aurora Ellis)

By Cole Horton