Global sustainable mutual fund assets hit a new record high in the second quarter, led by flows into equities, although the pace of net inflows slowed from the prior quarter, according to data from Morningstar.
Funds focused on environmental, social and governance (ESG)-related issues saw their combined assets climb to $2.3 trn for their fifth consecutive quarter of growth, up 12% from the end of March.
However, while market gains, product launches and ongoing demand from investors helped drive assets higher, the $139.2 bn in net inflows was down 24% from the first quarter.
Morningstar said that the slowdown was driven by Europe, which is the largest sustainable market, accounting for over 81% of these flows.
However, the region “remains by far the most developed and diverse ESG market”, while the US comprising 13%, registered a “more moderate decline” in sustainable net flows of 18% over the period.
Flows for Canada, Australia and New Zealand, Japan and Asia combined were $9.2bn.
Morningstar also attributed the one-third decrease to “plummeting inflows” in Asia ex-Japan, which slid more than 58% over the three months through June 2021.
Product development though remained strong, with the launch of 177 new sustainable offerings globally.
Asset managers also continued to repurpose and rebrand conventional products into sustainable offerings.
Equities remained the most popular asset class for investors with funds attracting $46 bn in net new money in the second quarter, a 76% hike over the previous quarter.
Net flows into sustainable fixed income funds, however, dropped 41% to $24 billion in the June quarter, the data showed.
Hortense Bioy, global director of sustainability research at Morningstar, said that the lower inflows into ESG funds “shouldn’t be interpreted as a slowdown in the trend” towards sustainable investments.
“The European ESG space is going through a profound transition. As the EU Action Plan on Sustainable Finance seeks to re-orient capital flows towards sustainable activities, SFDR is creating new disclosure standards to increase transparency,” she said.
She added,” Against this backdrop, asset managers are redesigning their offerings to not only meet the growing demand for ESG investments, but also contribute to a greener future.”
The data provider also published an update on the European sustainable funds universe, following the introduction of the Sustainable Finance Disclosure Regulation (SFDR) Article 8 and 9 classifications in March this year.
The report showed that Article 8 and 9 funds account for 30.3% and 3.7% respectively of reviewed fund assets and amount to €3trn in total.
“From just over a third today, we predict that Article 8 and 9 funds could reach 50% of overall EU fund assets within the next 12 months. Many managers are already reporting a higher proportion of Article 8 and 9 fund assets, while others have unveiled plans to augment their Article 8 and 9 product offerings in the coming months,” added Bioy.
The report revealed that active management dominates the post-SFDR ESG fund landscape, with passive funds account for just 11% and 10% of assets in Article 8 and 9 funds respectively.
©Markets Media Europe 2021
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