Two new studies have shown there continues to be an increase in assets flowing into ‘sustainable’ portfolios, which are managed using environmental, social and governance (ESG) principles alongside traditional financial metrics.
In its latest quarterly survey, data analysts Morningstar found that the European sustainable fund universe was expanding at almost three times the rate of the wider fund management industry.
In the third quarter of 2019, assets in sustainable portfolios grew by 6 per cent to €626bn. This compares to a growth rate of 2.6 per cent for the overall European fund universe.
Morningstar points out that over the year-to-date €70.4bn has poured into sustainable funds, representing 39 per cent of the total flow into European funds.
Over the past quarter €24.9bn had been invested in sustainable funds. This is down on the previous two quarter, as there was a drop in demand for sustainable fixed-income and allocation funds. However demand for sustainable equity funds remained steady at €12.5bn over the quarter, in contrast with traditional equity funds which continued to bleed assets.
It added that there were 93 new sustainable offerings launched during this period, which brings the total of new sustainable fund options to 252 for the year to date. Passive funds continued to dominate the most popular sustainable options, with BlackRock Toping the quarterly flow chart, with €3.47bn of net new money. This was followed by UBS and BNP Paribas.
Elsewhere, The Thinking Ahead Institute (TAI) released research showing that ESG mandates increased by 23.3 per cent last year, bucking the overall downward trend, which has seen the assets under management decline at the largest managers.
TAI said as well as an increase in assets invested in ESG mandates, it has also seen assets managed according to economic principles increase by 17.8 per cent over the year.
In an overcrowded asset management industry, TAI said a “stronger underlying purpose, beyond the pursuit of only growth and profit” was often identified as a differentiating factor.
It added that client interest in sustainable investing, including voting, increased across 83 per cent of the firms surveyed.
The research said sustainability and the importance of culture in the effective practice of investment organisations were key areas of interest in 2018.
Morningstar’s director of passive strategies and sustainability research Hortense Bioy says: “Continuously strong flows into sustainable funds in Europe are evidence that investors are increasingly putting their money where their mouth is.
“Many surveys and studies on the topic show that investors are interested in sustainable investments but are not turning their interest into action. Our data proves that the gap between interest and action is narrowing.”
These comments were backed by TAI’s head of research Bob Collie who adds: “Sustainability has now become an unavoidable issue.” He said that while there was a gap between intent and action there were renewed efforts being made to close this gap.
He says: “There is also a growing appreciation of the importance of culture. Good culture does not appear by accident, and our ability to assess and adapt it is developing. There’s room for improvement here.”
