Fund Solutions

Global Sustainable Fund Assets Top US$1.2 Trillion in Q3 2020

Strong supply and demand across all markets contribute to net inflows of US$80.5 billion, according to Morningstar. 

Investment in sustainable fund products saw a global increase in the third quarter of 2020, according to data from Morningstar, with inflows in all major markets contributing to a new high of US$1.2 trillion in total ESG fund assets.

Overall, global inflows into sustainable funds grew 14% in Q3 2020, with net purchases worth US$80.5 billion, suggesting continued strong demand. The third quarter also reflected robust levels of supply, as product development also reached all-time high of 166 new offerings. This growth includes 38 launches in countries outside of Europe and the US, double the second-quarter number. The total number of global sustainable funds stood at 3,774 at the end of September 2020.

Whilst garnering a slightly smaller share of global inflows in the latest quarter (76.57% versus 86% for the second quarter), Europe continues to dominate the global sustainable fund universe, with the U.S. taking 12%, and Japan leading the flows in the rest of the world at 8.7%.

Sometimes painted as lagging other markets, US sustainable funds have attracted US$30.7 billion so far in 2020, having gathered inflows of US$9.8 billion in Q3.Global flows across the rest of the world increased considerably from previous quarters, totalling US$9.1 billion for Canada, Australia, New Zealand, Japan and Asia combined, up from US$0.48 billion in the previous quarter.

The strong global market inflows demonstrate burgeoning investor interest in ESG issues, said Morningstar, particularly as a result of the continuing COVID-19 crisis, which has highlighted the importance of resilient and sustainable business models. “The average outperformance of sustainable funds in the first quarter globally has also helped alleviate some investors’ concerns about a potential return trade-off in sustainable strategies,” said the report.

Currently, the European market is the most developed and diverse ESG market for investors, with 2,898 sustainable funds available, and many more formally consider ESG factors either to mitigate risk or pursue returns. In Q3 2020, sustainable funds gathered 40% of net inflows into the overall European fund universe (US$61.6 billion out of US$157 billion).

European sustainable fund assets surpassed US$1 trillion for the first time, whilst global ESG fund assets continuing to demonstrate a steady recovery from Q1 2020’s Covid-19 market shock, reaching a record high of US$1.258 trillion in September, an increase of 19% from Q2.

Passive ESG funds captured almost a third (31.8%) of Q3 2020 inflows in Europe, up from 27% in the previous quarter, while continuing to dominate the US market. With inflows of USD$6.2 billion in Q3, passive funds have attracted 71% of overall flows into US sustainable funds in the year to date.

Morningstar’s global sustainable fund universe encompasses open-end funds and exchange-traded funds that claim to have a sustainability objective, or use ESG criteria for their investment selection. This excludes funds in controversial weapons, tobacco and thermal coal, as well as funds using ESG considerations in a nondeterminate way for investment selection.

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