Stockholm (NordSIP) – “Whether to mitigate risk, identify opportunities, or align values, more investors—institutions and individuals—are incorporating environmental, social, and governance factors into their investment decisions,” explained Morningstar‘s latest update of the European sustainable fund industry. “Responding to growing demand for sustainable investment strategies, asset managers have ramped up their efforts by launching new funds with sustainable mandates and repurposing existing funds.”
The report, compiled by Hortense Bioy, CFA, Director of Passive Strategies and Sustainability Research for Europe, and two analysts – Elizabeth Stuart and Dimitar Boyadzhiev – noted the industry had enjoyed net flows of € 36.9 billion and positive stock market returns in the first half of 2019. “It is more than any past semiannual period. It also closes in on 2018’s net flows of EUR 38 billion for the full year,” the report noted.
In that period, 168 new sustainable funds were opened, over half of the same amount for the whole of 2018. AUM for the whole industry grew by 20.5% to € 595 billion, compared to 7.7% for the European fund industry as a whole. While active funds remained most popular, passive sustainable options continue to grow rapidly and now represent 17.7% of the industry, up from 10% in 2014.
While a Nordea fund (Nordea 2 – Global Sust Enh Eq X USD) topped the list of new fund flows, with € 2.348 billion in new flows in 2019H1, it was also another Nordea fund (Nordea 1 – Stable Return) that topped the list of the “Bottom 10 sustainable fund flows”, with a €1.188 billion in outflows.
IShares and UBS have been the primary beneficiaries of the rising popularity of sustainable ETFs. “They attracted more than EUR 1.74 billion and EUR 1.64 billion in net flows, respectively,” the report clarified. “IShares, with its five newly added MSCI ESG Enhanced ETFs, has overtaken UBS in terms of its number of products, although not yet in terms of its assets.”
Sustainable equity funds remain the most popular options, particularly “Global Large-Cap Blend Equity” of which Morningstar identified 425 different funds. There are about a third as many sustainable fixed income funds as there are total equity funds. Alternatives, convertibles and property are the three least popular categories.
Nordics dominate the top 10 sustainable asset managers by AUM, with Storebrand (€ 33.3 billion), Handelsbanken (€28.3 billion), Swedbank (€24.9 billion), Nordea (€23.1 billion) and KLP (€19.1 billion) come in first, fifth, sixth, seventh and eighth place respectively.
Going forward, Morningstar expects impact and thematic mandates to become the focus of existing sustainable strategies as conventional funds become more sustainable.