Sustainable investment funds hit trillion-dollar milestone

The second quarter of 2020 saw sustainable funds increase by more than 70 per cent 

Assets in sustainable funds globally have rebounded strongly from the coronavirus pandemic, hitting the US$1 trillion mark for the first time. 

Analysis from Morningstar found that the global sustainable market was boosted by the stock market recovery and growing investor interest in environmental, social, and governance (ESG) issues. 

This resulted in global inflows into sustainable funds rising by 72 per cent in the second quarter of 2020 to US$71.1 billion (A$99 billion).

Assets under management in sustainable funds also rebounded in the second quarter by 25 per cent, reaching an all-time high of US$1.06 trillion (A$1.48 trillion) at the end of June.

The bulk of second quarter sustainable investing inflows came from Europe (86.3 per cent), with the US accounting for around 14.6 per cent.                                   

Australia and NZ only accounted for 0.2 per cent of inflows, while Japan and the rest of Asia actually reported an outflow of 1.3 per cent.  

Analysts at UBS said in a research note that investors with a long-term investment horizon were increasingly adopting ESG investing as a risk-management tool.  

“Part of the interest in sustainable investing has been fuelled by the pandemic, which has highlighted the importance of investing in business models that are resilient to shocks,” they said.

“But we think the flight to sustainable funds is likely to persist.“

They also said governments around the world were stepping up their support for green projects in recent years, both through regulation and fiscal spending. 

“This has intensified in the wake of the COVID-19 pandemic, as governments have committed to a green recovery,” they said. 

“This emphasis should add an additional impetus to the performance of ecologically friendly companies over the coming years.”