Sustainable Fund Flows Hit New Record

Sustainable funds attracted all-time high inflows of €120 billion in the first quarter, with 111 new funds launched in the first three months of the year

Hortense Bioy, CFA 5 May, 2021 | 9:24AM
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2021 began where 2020 left off with European investors continuing to pour vast amounts of money into sustainable funds. Sustainable funds attracted all-time high inflows of €120 billion in the first quarter of 2021. This is 18% higher than in the previous quarter and represents more than half of overall European fund flows.

Meanwhile, sustainable fund assets increased by 17.5% over the quarter, reaching a record high of €1.3 trillion. 

Quarterly Sustainable fund flows

The steady first-quarter inflows were driven by continued investor interest in ESG issues, especially in the wake of the Covid-19 crisis. The disruption caused by the pandemic has highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations. More investors are looking to promote more sustainable practices and products, while others are looking to future-proof their portfolios against climate risk. Climate funds were once more among the best-selling funds in Q1 2021, with six of them featuring among the top 10.

Top 10 sustainable fund flows

Another contributing factor to the strong inflows in the first quarter of 2021 was the continued growth of the sustainable fund universe, in terms of number of products. We have identified 111 new sustainable fund launches in Q1, which is in line with the number of launches in Q1 2020.

The year 2020 set a record, with a total of 532 new sustainable offerings hitting the shelves, while more than 250 conventional funds repurposed. We can expect more of the same this year, supported by favourable regulation.

European Sustainable Fund Launches

Regulatory Changes

The focal point of the EU regulatory landscape in the first quarter was the Sustainable Finance Disclosure Regulation, which took effect on March 10. Under SFDR, the entire universe of European funds is being classified by their managers into one of three categories, Article 6, 8, or 9, depending on the product's sustainability objective. All funds will be required to provide some ESG disclosure, as per Article 6, while Article 8 and Article 9 funds will be required to provide more detailed ESG information to investors from next year.

As of April 27, Morningstar has collected SFDR data on about 52% of the European investment universe (over 15,000 investments). Of all the funds reviewed so far, 20.9% and 2.7% are classified as Article 8 (light green) and Article 9 (dark green), respectively. This means that one in four funds available for sale in the EU have classed themselves as sustainable in some way.

SFDR article breakdown

By extrapolating the data collected so far, we estimate that the European ESG and sustainable funds market, based on Article 8 and 9 definitions, could be worth as much as €2.5 trillion, twice as large as our universe of sustainable funds as identified by Morningstar analysts. And we expect this number to increase in the coming months as managers enhance strategies, reclassify funds, and launch new ones that meet Article 8 or 9 requirements.

 

 

 

 

 

 

European Sustainable Fund Flows

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About Author

Hortense Bioy, CFA

Hortense Bioy, CFA  is global head of sustainability research at Morningstar