ESG investing continues to grow. According to the latest report by Morningstar, the global sustainable universe attracted 185.3 billion dollars in net inflows in the first quarter of 2021, up 17% from 158.3 billion in the previous quarter. Specially supported by strong inflows in Europe, global assets neared the 2 trillion mark, up 17.8% from the last quarter.
The universe of the Global Sustainable Fund Flows review encompasses open-end funds and exchange-traded funds that claim to have a sustainability objective and/or use binding ESG criteria for their investment selection. The report divides it into three segments by domicile: Europe, United States, and Rest of World.
Thus, it shows that Europe took in the bulk of the flows during the first quarter of the year (79.2%), while the U.S. accounted for 11.6% of them. In the rest of the world, they were considerably higher than in previous quarters, clocking in at 17.1 billion dollars for Canada, Australia and New Zealand, Japan, and Asia. This is compared with 13 billion in the fourth quarter of 2020, a spike that can be largely attributed to an uptick in flows in Japan and China combined.
Europe accounts for 83% of global assets, followed by the United States with 12%. The past three years have seen a steady increase in assets in sustainable funds globally. “With currently 4,523 sustainable funds available and many more that now formally consider ESG factors in a nonconstraining way to better manage risks and improve returns, Europe is by far the most developed and diverse ESG market“, highlights the report.
Furthermore, product launches globally remained strong in the first quarter, with 169 new ones entering the market. This is down from the all-time record set in fourth-quarter 2020 with 215 launches but up from the first quarter of 2020. Morningstar explains that product development always slows down in the first quarter relative to the fourth one. The majority of the launches (65.6%) took place in Europe, while Canada and Asia ex-Japan both saw new 17 products, followed by Japan with 13 and U.S. with 11.
U.S. market
The analysis shows that, once again, sustainable funds in the United States attracted an all-time record level of flows in the first three months of 2021. In that period, U.S. sustainable funds saw nearly 21.5 billion dollars in net inflows. That’s slightly more than the previous record, USD 20.5 billion, set in the fourth quarter of 2020, and more than double the 10.4 billion seen one year ago, in the first quarter of 2020. It was also about 5 times greater than first-quarter flows in 2019.
Also, sustainable passive funds dominated their active peers in attracting flows. During the first quarter, passive funds claimed nearly 15 billion dollars, or 70% of all U.S. sustainable flows. In this sense, the five funds attracting the most flows in the first quarter of 2021 were all passive equity funds.
Meanwhile, assets in U.S. sustainable funds have stayed on “a steady growth trajectory”, says Morningstar. As of March 2021, assets totaled nearly 266 billion dollars. That’s a 12% increase over the previous quarter and a 123% increase year over year. Active funds retained the majority (60%) of assets, but their market share is shrinking because, as the report highlights, three years ago, they held 82% of all U.S. sustainable assets.
European market
Europe was the key to the good figures registered in the first quarter of 2021. European sustainable funds attracted inflows of 120 billion euros in the first quarter of 2021. This is 18% higher than in the previous quarter, and it represents 51% of overall European fund flows. Besides, sustainable fund assets increased by 17.5% over the quarter, reaching a record high of 1.3 trillion euros.
The report also shows that index funds and ETFs garnered 36.5 billion euros in sustainable fund flows, accounting for 30% of first quarter flows, up from 32.8 billion euros in the previous quarter.
As for product development, in the first quarter of 2021 it remained high in Europe, with 111 new sustainable fund launches identified by Morningstar. The firm expects this high level of sustainable product development to continue to be spurred by the Sustainable Finance Action Plan of the European.
Por Clara Suarez
Por Funds Society, Madrid