October 20, 2020

ESG and sustainable funds surpass $1 trillion for the first time


A farmer rowing a boat checks fish under the solar panels at a fishery-solar hybrid photovoltaic power station on August 10, 2020 in Ding’an County, Hainan Province of China.

Yuan Chen | VCG via Getty Images

Assets under management in funds that abide by environmental, social and governance (ESG) principles have surpassed $1 trillion for the first time on record, according to data compiled by Morningstar.

It comes after net inflows of $71.1 billion between April of June this year, driven by growing investor interest in sustainable investment funds in the wake of the coronavirus pandemic.

“Governments around the world have been stepping up their support for green projects in recent years, both through regulation and through fiscal spending,” analysts at UBS said in a research note published on Tuesday.

“This has intensified in the wake of the Covid-19 pandemic, as governments have committed to a green recovery,” they continued. The “emphasis should add impetus to the performance of ecologically friendly companies over the coming years.”

In a report published earlier this month, researcher Morningstar cited three factors contributing to record second-quarter inflows into ESG funds.

It said the disruption caused by the Covid-19 outbreak had “highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations.”

The continued growth in the number of products making up the sustainable fund universe had also acted as a catalyst for ESG investment funds in recent months, the company said.

It found that the number of funds that use ESG criteria as a key part of their security-selection process in Europe had jumped up to 2,703 by the end of the second quarter, up from 2,584 at the end of March.

Additionally, asset managers were seen to be “greening” their offerings by converting 40 traditional funds into sustainable funds over the three-month period through to the end of June. Morningstar said 30 of these funds were also renamed.

The repurposing of existing funds into sustainable offerings, the research firm explained, offered a way for the asset managers to leverage existing assets when building their sustainable funds business. It means the funds do not have to start from scratch and can accelerate the time frame required to reach scale.

Stakeholder capitalism

Last month, BlackRock CEO Larry Fink said that the idea companies have a greater purpose besides just providing returns for shareholders would soon become even more important.

“The one thing that is very clear in this Covid world … [is that] stakeholder capitalism is only going to become more and more important, and the companies that focus on all their stakeholders — their clients, their employees, the society where they work and operate — are going to be the companies that are going to be the winners for the future,” Fink told CNBC’s “Squawk Box” on July 17.

The CEO of BlackRock, which is the world’s largest money manager with more than $7 trillion in assets under management, also said the investment fund had seen a “surge of interest” among clients looking to invest in areas like renewable energy.

— CNBC’s Pippa Stevens contributed to this report.



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