Morningstar: 2020 record-breaking year heralds new era for sustainable investing in Europe

Morningstar has published its European Sustainable Funds Landscape examining the continued growth in inflows, assets, and the number of sustainable funds available to institutional and retail investors in Europe in 2020. They have also analysed how European sustainable funds stack up against their conventional counterparts in terms of ESG risks, alignment with the low-carbon transition, fees, style factors, and sector exposures.

The report is available and you can access it using this link

Key Takeaways include:

  • Assets in European sustainable funds surged 52% in the past year to hit EUR 1.1 trillion in December 2020, driven by significant inflows, repurposed assets, and rising financial markets.
  • Flows in 2020 were almost double those of 2019, at EUR 233 billion. After a decline during the COVID-19 market shock in the first quarter, sustainable fund flows recovered strongly to reach record highs in the fourth quarter, with just shy of EUR 100 billion in net new money. Among sustainable fund providers in Europe, BlackRock, which routinely tops the leader board, pulled way ahead in fourth-quarter 2020.
  • Fossil-Fuel Exclusions. The fossil-fuel divestment movement continued in full swing last year as more asset managers reduced or committed to reduce exposure to fossil fuels in their fund offerings. Meanwhile, climate-change-themed funds were among the best sellers in 2020.
  • Product development broke new records, with the launch of 505 new sustainable funds and the repurposing and rebranding of at least 253 conventional funds last year. The fourth quarter hit an all-time high of 147 new offerings. This brings the total European sustainable funds universe to 3,196 funds.
  • Passive funds now constitute about 22% of the European sustainable fund universe. Many are designed to substitute for broad market index funds, while others focus on specific themes or sectors. As of December 2020, there were 191 ETFs and 177 open-end funds tracking an ESG index.
  • 2020 was also a pivotal year for the regulation of ESG investing. Aimed at encouraging the flow of capital into sustainable activities to meet the EU goal of a net-zero economy by 2050, new regulations such as SFDR, which takes effect in March, are opening up a new era packed with possibilities for investors.

Hortense Bioy, Global Director of Sustainability Research comments: “2020 might have been the year of the COVID-19 pandemic, but it was also the year that ESG and sustainable investing reached a pivotal point. Record ESG fund flows, assets, and product development activity, combined with the most ambitious regulatory agenda to address climate change all herald a new era for sustainable investing in Europe. ESG funds can no longer be seen as a niche area of the European funds landscape. From 11% today, we see ESG funds representing a much larger share of the overall fund market in the coming years.”

Morningstar also recently published their Q4 2020 look at sustainable fund flows globally; the report is available via this link should you wish to access it.


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