LONDON (Reuters) - Global sustainable mutual fund assets hit a fresh record high in the second quarter, led by flows into equities, although the pace of net inflows slowed from the prior quarter, data from Morningstar showed. Funds focused on environmental, social and governance (ESG)-related issues saw their combined assets climb to $2.3 trillion for their fifth consecutive quarter of growth, up 12% from the end of March. However, while market gains, product launches and persistent demand from investors helped drive assets higher, the $139.2 billion in net inflows was down 24% from the first quarter. (Graphics: Sustainable funds" asset size: ) “An increase in the number of sustainable products across the globe, market appreciation, and positive inflows continued to drive global sustainable fund assets upward,” said Morningstar in a report on Tuesday. “Inflows in the second quarter have faltered, but asset growth remain strong,” it said. Morningstar said its data captures all the funds which claim to have a sustainability objective or which use ESG criteria when deciding which assets to buy and sell. (Graphics: Flows into sustainable funds vs traditional funds: ) European sustainable funds continued to secure the lion’s share of net inflows, at $112.4 billion, followed by the United States and Asia, with net inflows of $17.6 billion and $1.2 billion, respectively. Despite the growth in Europe, demand for conventional funds domiciled in the region was even greater, with inflows of $150.6 billion, up 15% from that seen in the first quarter. (Graphics: Q2 flows into sustainable funds by region: ) Equities remained the most popular asset class for investors looking to invest sustainably, with stock funds attracting $46 billion in net new money in the second quarter, a 76% increase over the previous quarter. Net flows into sustainable fixed income funds, however, dropped 41% to $24 billion in the June quarter, the data showed. “Overall, fixed income funds registered an increase in inflows over the period as investors poured money into duration-shortening strategies to protect portfolios against the risk of rising interest rates in the face of creeping inflationary pressures,” Hortense Bioy, global director of Sustainability Research, told Reuters. “A lack of options in the ESG fixed income space - and the focus on corporate bonds - means that ESG funds didn’t benefit from that trend.” (Graphics: Flows into sustainable equity and fixed income funds: )