Europe remains a hotbed for sustainable investing, with environmental, social, and governance investments attracting almost half of the new money flowing into European funds last year.
According to the Association of the Luxembourg Fund Industry, which represents the region’s biggest fund market, a record €1.12 trillion, or $1.4 trillion, in investor money flowed toward strategies that target ESG considerations, Bloomberg reports. Consequently, 11% of European assets under management are now in sustainable funds.
The recent study revealed that Luxembourg remains the leading domicile, with sustainable funds accounting for €371 billion at the end of 2020 and making up 44% of total net flows across Europe’s market.
The study also discovered that total sustainable assets have more than doubled since 2018, highlighting the idea that growth in some areas of ESG investing is now approaching an exponential level.
“The large investors, the pension funds, institutional investors, they have already said that in one or two years time they will not consider mainstream funds any more,” Marc-André Bechet, deputy director general at ALFI, told Bloomberg.
Asset mangers are allocating more toward sustainable funds rather than conventional funds, according to an ALFI study.
The spike in ESG investment interest also coincided with a number of new ESG fund strategies launched last year, which jumped by almost half in 2020 from a year earlier, while the number of new traditional products declined by 17%.
Europe has placed greater focus on ESG investment flows as officials push forward legislation designed to divert financing away from businesses and projects that contribute to climate change. Consequently, asset managers are now combing through company data to find ways to reduce their carbon footprints.
“We certainly didn’t expect that many funds to be classified as Article 8,” Hortense Bioy, global director of sustainability research at Morningstar, told Bloomberg. “It is a very competitive landscape, and asset manager really want to have as much funds as possible in the category 8 category, at least.”
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