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Asset Managers Watch As ESG Funds Attract Investors

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The money flowing into sustainable investing has shown no signs of slowing down in 2021, as high demand for Environmental, Social, and Corporate Governance (ESG) funds pushed inflows to a new record during the first quarter.

Global ESG funds attracted $185.3 billion during the first three months of the year, a gain of roughly 17 percent from the previous year and previous quarter. The Q1 total pushed total assets under management in ESG funds to nearly $2 trillion, according to data from Morningstar.

This year’s surge continues a trend that has seen ESG funds balloon in both numbers and dollars in recent years.

“2021 began where 2020 left off, with record demand for sustainable investment options across the globe,” Hortense Bioy, global director of sustainability research at Morningstar, told CNBC.

Europe once again led the way, accounting for nearly 80 percent of total ESG fund flows. But the United States showed progress as well, attracting nearly $21.5 billion in net inflows of sustainability-focused funds during the first quarter. That figure, which also set a new record, was double the prior year’s total and five times as much as the 2019 first quarter.

It’s all good news for sustainable investing, which continues to wedge its way further into the mainstream. ESG funds were rising at a rapid clip even before the COVID-19 pandemic hit. Since then, a number of factors – including social unrest, extreme weather events, and renewed focus on sustainability and resilience measures  – have driven even more money into such funds.

In 2020 investors poured a record $27.4 billion into ESG-focused exchange-traded funds (ETFs) in U.S. markets, The Wall Street Journal reported in December. Asset managers had launched 31 ESG-related ETFs by late 2020, which was nearly double the previous year’s figure. The total number of ESG funds in the U.S. moved past 100, according to financial data and software firm FactSet.

Between 2018 and 2020, total U.S. domiciled, sustainably invested assets under management climbed 42 percent to $17.1 trillion, per CNBC.

In a recent report, Morningstar said a “broad consensus” has emerged over the past year about the need to address climate risk in investment portfolios.

“More investors see the green transition to a low-carbon economy as an investment opportunity,” Morningstar said. “Asset managers are therefore rapidly developing new risk-management solutions, launching innovative products, and retooling existing ones to help investors decarbonize their portfolios and invest in green solutions.”

The five funds that attracted the most inflows during the first quarter were iShares Global Clean Energy ETF, iShares ESG Aware MSCI USA, First Trust Nasdaq Clean Edge GreenEnergy, iShares ESG Aware MSCI EAFE, and iShares ESG Aware MSCI EM.

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Other leading asset managers have also made big recent moves into ESG investing, including BlackRock and USB.

As noted on the ETF Express website, BlackRock’s iShares Sustainable UCITS EMEA ETF recently crossed $50 billion in assets under management and recorded $10 billion in first-quarter inflows this year. That was triple the total from the previous year’s first quarter. BlackRock launched 93 new sustainable solutions in 2020 – including ETFs based on the S&P 500 and other indexes, but that exclude companies involved in the fossil fuel, tobacco, and weapons industries.

Meanwhile, UBS Asset Management’s Sustainable Development Bank Bonds UCITS ETF has reached $1 billion in assets.

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