Sustainable fund inflows hit record high in first-quarter - Morningstar

By Patturaja Murugaboopathy and Simon Jessop

(Reuters) - Record demand to invest in sustainable investment funds saw the sector's total assets rise 19% to a fresh high of nearly $2 trillion in the first quarter, data from industry tracker Morningstar showed.

The surge 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-related issues.

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

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

(Graphic: Sustainable funds' assets touched a record high in Q1: https://graphics.reuters.com/SUSTAINABLE-FINANCE/oakpewbrdpr/chart.png)

(Graphic: Sustainable equity funds saw record inflows in Q1: https://graphics.reuters.com/SUSTAINABLE-BUSINESS/gjnvwdmrqpw/chart.png)

(Graphic: Flows into sustainable fixed income funds: https://graphics.reuters.com/SUSTAINABLE-FINANCE/xklpyyaoqpg/chart.png)

Europe, at the forefront of ESG investing, saw the biggest jump in demand, with net purchases of $146.7 billion, while funds based in the United States and Asia ex-Japan saw $21.5 billion and $7.8 billion of inflows, respectively.

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

(Graphic: Sustainable funds' Q1 flows by region: https://graphics.reuters.com/SUSTAINABLE-FINANCE/yxmpjdadjpr/chart.png)

Demand has, in part, been driven by performance, with ESG funds up 4.6% this year on average, compared with a 1.1% gain for non-ESG funds, Refinitiv Lipper data showed. ESG funds have outperformed their non-ESG peers in 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 sustainable equity strategies have performed well over the last year given low exposure to traditional energy and high exposure to renewable energy."

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

With rising awareness about environmental and social issues

such as climate change and board-room diversity, demand is set to grow further in the coming months, leading to more funds being launched.

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

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

Europe-based funds numbered 3,444, vastly outpacing the United States with 409 and Asia ex-Japan with 237.

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

(Graphic: Price performance of ESG vs non-ESG funds: https://graphics.reuters.com/SUSTAINABLE-FINANCE/rlgpdzdykpo/chart.png)

(Reporting By Patturaja Murugaboopathy, Editing by William Maclean)