Environmental impact fund assets triple in four years
Impact funds, which seek to make a measurable impact, have attracted investor attention. Environmental impact funds focusing on low carbon emissions attributed 55% of these assets, according to latest data from European Fund and Asset Management Association (Efama). Renewable energy funds exhibited highest growth (604%) during this period, though they constitute a lower level of net assets.
While social funds have experienced substantial growth in demand, environmental funds still hold the dominant position. Social impact funds focusing on gender and diversity and community development have exhibited growth of roughly 340% since January 2016, stated Efama’s latest market insights report on ESG investing in UCITS market.
Rise and rise of ESG funds:
The number of ESG Ucits in Europe had grown steadily over the past five years. Morningstar data revealed that in December 2020, there were 2,873 ESG funds when compared to 25,718 non-ESG funds. Passive funds represent 20% of ESG funds, highlighted the report.
ESG funds have recorded a strong growth rate, reflecting the higher proportion of equity funds in the ESG universe and strong performance of equity markets in 2019. This resulted in the share of ESG funds growing from almost 7% of total net assets in 2015 to 11% in 2020, said Efama. While non-ESG funds saw a growth in net assets of only 4%, ESG funds recorded growth rate of 37.1%.
Net assets of European ESG funds have increased significantly over the last five years, especially in 2019 and 2020. In December 2020, net assets of ESG funds stood at €1.2trn. Net sales of these funds amounted to an estimated €235bn in 2020, a tenfold increase from 2016 (€19.5bn).
Covid-19 accelerated green finance:
In terms of performance, ESG funds shined during the Covid-19 driven market turbulence in 2020. The gross annual performance of ESG equity funds reached on average 10.4% in 2016-2020, compared to 9.2% for non-ESG funds. The difference is attributable mostly to the strong performance of ESG equity funds observed in 2020 (8.6%, compared to 4.6% for non-ESG equity funds), as many of these funds were less exposed to sectors that were severely affected by the Covid-19 crisis, in particular energy and financial services. This propelled further the growth of ESG funds.
Tanguy van de Werve, Efama Director General commented, said that the new regulatory measures, such as the Sustainable Finance Disclosure Regulation that came into force in March 10, intend to enhance comparability and trust for investors in ESG funds, as well as hold market participants accountable and avoid greenwashing. “Promoting confidence in this market can increase participation, especially from retail investors, thereby further accelerating the trend we observe,” he added.