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ESG funds remain on course for growth

In anticipation of increasing demand, investment companies are launching more and more funds for a clear conscience.imago images / Panthermedia

The green wave rolls and rolls: almost half of the money that European investors invested in funds in the third quarter of 2020 went into sustainability products. The bottom line, after offsetting the outflows, ESG funds collected 40 percent of the newly invested fund capital from July to September, reports the analysis company Morningstar. A total of almost 53 billion euros flowed into green portfolios across Europe. In September, ESG products were able to account for two thirds of the fund’s new business in Europe, says Morningstar expert Hortense Bioy.

The boom in green funds is likely to be fueled by the fact that the so-called EU preference query is just around the corner. Starting next year, financial advisors will have to ask their customers whether they want to consider ecological, ethical or social criteria when investing. The industry apparently assumes that many investors will answer this question with “yes” – and positions itself accordingly.

Impressive growth, but room for improvement

In anticipation of increasing demand, investment companies are launching more and more funds for a clear conscience. Across Europe, their number rose from 2,781 to 2,898 products in the third quarter. 105 ESG funds were launched and 31 conventional portfolios were turned towards sustainability. It is mainly thanks to the growth of the ESG range that sustainable funds are collecting more and more money, says Bioy. Because the larger their share of the entire fund universe, the more money they receive. The eco funds launched in the third quarter alone poured EUR 3.6 billion of fresh capital into the sustainable fund segment.

The growth of ESG investments is impressive, but given their share of the overall market there is still room for improvement. Funds with an ESG focus managed 9.3 percent of total European fund assets at the end of September. So they still make up a comparatively small part of the market, albeit one with growing importance.

Blackrock particularly successful

Sustainability products have some catching up to do, especially in the bond sector. Green equity and mixed funds have recently collected more money than their conventional counterparts – on the bond side, on the other hand, inflows into sustainable products have been meager. In the past quarter, investors in Europe invested around 13 billion euros in green bond funds, according to Morningstar. Traditional bond funds were able to attract significantly more money with around 60 billion euros. This imbalance is likely primarily due to the fact that there are far less sustainable bond funds than equity funds. The introduction of green bonds, with which states and institutions finance eco-projects, has provided a tailwind for sustainable bond portfolios. So far, however, there are only a comparatively few such green bonds, the segment is still in its infancy.

Investment houses are likely to launch new ESG funds on the market in the coming months. One provider has recently been particularly successful in terms of inflows: the world’s largest asset manager Blackrock collected a bottom line of EUR 7.7 billion with its sustainability funds in the third quarter. The French provider Amundi follows in second place with net inflows of around 3.2 billion euros. In third place is the major Swiss bank UBS with EUR 2.7 billion in ESG inflows. The figures show that sustainability has finally become a mainstream topic in the fund industry.

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