Investors bet on sustainable funds

In 2019, European investors allocated twice as much to sustainable funds as in 2018 due to the threat of climate change to the economy.

Last year, European investors poured up to twice as much cash into sustainable funds as in 2018 in response to fears about the threat climate change poses to the global economy. In fact, according to Morningstar, a record amount of 120 billion euros was invested in these products, more than double the 48.8 billion in 2018.

The assets of 2,405 funds studied by Morningstar reached a value of 668,00 million at the end of 2019, an increase of 56% over the previous year thanks to market fluctuations and the boom of these products.

Sustainable funds have become one of the areas of innovation of European investment groups. The managers launched 360 sustainable funds last year. Fifty of these have a climate-oriented mandate. Asset managers are also turning their products into sustainable funds in response to customer demand.

The asset management division of Scandinavian financial services provider Storebrand, which manages €23 billion, launched 28 fossil fuel-free funds in December.

“Sustainable solutions are becoming increasingly attractive and demand in Europe is growing rapidly,” explains Jan Erik Saugestad, CEO of Storebrand Asset Management.

“Scandinavian investors and asset managers pioneered strategies that incorporated environmental and governance parameters. Now we see that they are leading the initiatives aimed at dispensing with fossil fuels. It will be interesting to see how asset managers in other countries follow suit,” says Hortense Bioy, Head of Passive Strategy and Sustainability Analysis at Morningstar.

Most asset managers already avoid investing in fossil fuel companies.

“Portfolio managers are increasingly aware of the investment risks posed by disused assets such as fossil fuel companies. Divestment can free up capital to invest in companies that will help ease the transition to a low-carbon economy,” says Bioy.

The new investments, which are estimated to range between €260 billion and €300 billion annually until 2030, will be needed for Europe to meet ambitious targets of limiting global warming agreed at the Paris climate conference in 2015.

Morningstar limited its analysis to funds that it believes have integrated environmental, social and corporate governance standards into its portfolios.

It has also included funds that are interested in sustainability-related issues and those that offer sustainability parameters along with their financial results.

Morningstar also has located 160 European funds that have excluded or reduced their exposure to fossil fuels.

Bioy believes that “the advice offered by fund managers is sometimes confusing and misleading”, which does not help investors to know which companies have been discarded.

As part of a new directive released by the European Commission this week, companies will be required to provide adequate information on sustainability risks.

Valdis Dombrovskis, vice-president of the Commission, said that the preliminary work to adapt to the new directive should begin “as soon as possible” to simplify the current international regulations, which are confusing and very expensive for companies and investors.

Source: Expansión