Demand for sustainable investment funds hits record high of $2 trillion

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Demand for sustainable investment funds hits record high of $2 trillion

A power-generating windmill turbine is pictured during the sunset near Larnaca, Cyprus on September 30, 2017. REUTERS Yiannis Kourtoglou

Trending demand to invest in fresh investment funds saw the sector's total assets grow in the first quarter to a fresh high of nearly $2 trillion, data from industry tracker Morningstar showed.

The boom in interest marked the fourth quarter in a row that the sector's assets have hit a record high, amid growing interest from investors for funds focused on environmental, social and governance concerns.

Morningstar said its data captures all funds that claim to have an sustainability objective or use ESG criteria when deciding which assets to buy and sell.

The data show global sustainable funds attracted a record inflow of $185.3 billion in the opening three months of the year with a 17% bump in new cash being invested compared to last quarter.

Europe, at the forefront of ESG Investments, saw the biggest jump in demand with net purchases of $146.7 billion, while funds based in Japan were $21.5 Billion and $7.8 billion inflows, respectively.

Of the flows into European funds, the bulk was in actively managed funds, while index-setting funds collected $44.5 billion, from $40 billion in the prior quarter.

Demand has, in part, been driven by the performance, with ESG funds on average up 4.6% this year compared to a 1.1% gain for non-ESG funds, the Refinitiv Lipper data showed. The data showed that the ESG funds have outperformed their non-ESG peers 7 out of the last 10 years, the data showed.

Inflows into ESG strategies are largely attributed to strong performance, more developed track records and further awareness of ESG issues and factors, said Loren Asmus, vice president investment research at Canterbury Consulting.

Active ESG and sustainability equity strategies have performed well over the last year due to high exposure to traditional energy and low exposure to renewable energy.

At the end of the quarter, Europe's share of global assets was 81.9%, the data showed, followed by Asia with 13.4% and USA with 1.8% ex-Japan.

With increasing awareness of environmental and social issues, the world is getting more attention.

Demand, such as climate change and boardroom diversity, is set to grow in the coming months, leading to more funds being launched.

According to a Deloitte report, 200 new funds are expected to be launched across the United States in the next three years with an ESG investment mandate, more than double the activity from the previous three years.

According to Morningstar data, 169 new sustainable funds were launched in the last quarter of 2021, down slightly from the 215 records launched in the first quarter of 2020.

The Asia-based Funds was 3,444, wildly exceeding the United States with 409 and Europe with 237.

After the recent launch of rules in Europe that seek to increase transparency and harmonise standards among sustainable funds, Morningstar said one in four of those it had read locally as being sustainable in some way.

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