This is a hidden column

getTagNameMorningstarCorporate:blog/bigpicture

Sustainable Fund Flows in Europe on Track for a Record Year

Third-quarter sustainable fund flows remain strong at EUR 24.9 billion

Hortense Bioy

 

Investors are putting their money where their mouth is when it comes to environmental, social, and governance criteria, as evidenced by the strong sustainable fund flows registered by European funds so far this year.  

From January to September 2019, the flows into the 2,324 sustainable open-end funds and exchange-traded funds available to European investors reached EUR 70.4 billion, representing 39% of total flows into European funds.  

These sustainable fund flows are based on a universe of funds which claim to use explicit ESG criteria as a key part of their security selection and portfolio-construction process. Funds that stated they only consider, and not implement, ESG factors were not used, as these funds do not have a primary focus on ESG, impact, or a sustainable sector. 

Third-quarter flows into sustainable funds stood strong at EUR 24.9 billion—though not as strong as in the previous three months—as less money poured into fixed-income and allocation funds. Demand for sustainable equity funds remained solid at EUR 12.5 billion over the quarter, in contrast with traditional equity funds, which continued to bleed assets. 

Passive funds dominate the top-10 sustainable fund-flows chart 

Following the trend toward passively managed funds, the sustainable index-tracking open-end funds and ETFs continued to take a greater share of net new money at 29% in the third quarter, compared with 22% in the previous quarter.

Passive funds dominated the top-10 flow chart in the third quarter, with four index funds and ETFs occupying the top spots. 

The two funds with the largest net flows in the third quarter are offered by BlackRock: 

  • The iShares MSCI EMU ESG-screened ETF, which was launched just a year ago, claimed EUR 572 million in flows.
  • The iShares ESG-screened Euro Corporate Bond Index fund yielded EUR 541 million in inflows. 

Passive funds have almost doubled their market share over the past five years. They now represent 19% of the European sustainable fund market, up from just 10% in 2014.  

Product development shows no sign of slowing down 

There were 93 new sustainable offerings launched in the third quarter, bringing the overall number of sustainable funds domiciled in Europe to 2,324. Twenty-six of these new funds feature “ESG” as a term in their names and 26 contain the term “sustainable.”  

We continued to see thematic funds brought to market, such as the UBS CCF-Global Climate Aware fund and CPR Invest Future Cities, as well as sustainable-sector funds like Schroders ISF Global Energy Transition. These kinds of funds allow investors to mitigate risk and/or gain exposure to companies that will benefit from, or contribute to, solutions to environmental and/or social challenges. 

Also worth noting is the growing range of options for climate-conscious investors. At least nine new offerings have a specific climate change or energy transition-related mandate.

This year, we can expect the number of new launches to match or even exceed last year’s record of 311 new sustainable offerings for the calendar year. The year-to-date tally of sustainable fund launches stands at 252, and fund launches typically spike in the final quarter of the year. 

For updates on trends in ESG investing, sign up for our newsletter.

Subscribe Now

 

The Morningstar Retirement Quiz for Advisors

Test your knowledge and get ideas for helping your clients.

Trending Research

Get our latest in-depth analysis and differentiated industry coverage.

Join us at the Morningstar Investment Conference

Register for MIC June 3-5