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ESG funds approach $2trn as majority of European flows turn green

Clean energy ETFs are the most popular passive product in the US

Clean energy ETFs are the most popular passive product in the US

Global sustainable fund flows of $185bn has pushed the sector’s assets under management (AUM) just shy of $2trn as it continues to break records, according to research from Morningstar.

Europe continues to dominate the space with 82% of the $1.98trn AUM with the US following in second place with 13% of assets across open-ended and exchange-traded funds.

Annual ESG ETF inflows outweigh non-ESG for first time

Product launches remained strong as 169 new funds entered the market globally, which is down slightly from the record 215 launches set in Q4 2020, but up from Q1 2020, and Europe tops the tables in this regard too, with 66% of all new products.

Sustainable funds are defined by Morningstar as those which “claim to have a sustainability objective and/or use binding ESG criteria” but excludes funds which “formally integrate ESG considerations in a nondeterminative way” or those which “employ only limited exclusionary screens such as controversial weapons, tobacco and thermal coal”.

Flows into the European sustainable funds industry now represent the majority of new money invested, with 51% of overall European fund flows heading to ESG products.

In Europe, active funds beat passive to these flows, with 70% of Q1 money flowing to the active space, leaving index funds and ETFs with 30%, although this figure continues to increase.

In the US, the opposite is true, with 70% of all sustainable flows heading to passive funds, of which clean energy thematic ETFs are the most popular, representing four of the top five most popular funds.

Asset managers support SFDR but concerns remain over impact on boutiques

Global ESG ETF flows are set to double this year, with a record $54bn flowing to the passive products in Q1, a figure 60% of total annual flows in 2020, according to Bloomberg Intelligence.

If flows continue at this rate, Shaheen Contractor, ESG analyst at Bloomberg Intelligence, predicted the 2021 flows could more than double that of the record set last year.

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