What's New in Sustainable Funds
There are more options than ever for socially conscious fund investors.
When Morningstar launched our Sustainability Rating for Funds back in March, it gave investors a valuable tool to measure how sustainable a mutual fund's portfolio is--that is, how well the companies it owns are handling the various environmental, social, and governance issues they face. That's a good thing, because sustainable investing (also known as ESG or impact investing) has been steadily growing in popularity, as my colleague Jon Hale noted last year. Industry group US SIF, in its 2014 Report on US Sustainable, Responsible, and Impact Investing Trends, identified $6.6 trillion invested sustainably in the United States in 2014, a 76% jump from two years earlier, including almost $2 trillion invested in retail vehicles such as mutual funds, exchange-traded funds, and variable annuities. A 2015 survey by the Morgan Stanley Institute for Sustainable Investing found that millennial investors are especially interested in investing sustainably, so opportunities to do so are only likely to grow.
Given all that, it's no surprise that the number of mutual funds with a sustainable mandate has been growing over the past decade, and especially in the past few years. Of the 200 or so ESG-oriented U.S. mutual funds in Morningstar's database, roughly half have been launched within the past 10 years, and 32, totaling $1.8 billion in assets under management, have launched since the beginning of 2015. The pattern is even more striking with ETFs, which have not traditionally been a big area for sustainable investing. Of the 35 U.S.-based sustainable ETFs in our database, half have launched since the beginning of 2014, and 10 have launched in 2016, more than the nine sustainable open-end funds that have started up this year. My colleague Ben Johnson surveyed the rapidly growing world of sustainable ETFs in June. This growth has been accompanied by an expansion of the variety of sustainable funds available to investors; there are now multiple funds that emphasize strong corporate sustainability performers, low-carbon or fossil free options, and gender equity, among other things.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.