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Investors deposited record amounts into funds that aim to help the environment and promote social well-being last year, more than doubling the previous year’s take-up.
Funds that use so-called ESG principles can, for example, invest in energy companies that do not rely on fossil fuels or in companies that promote racial and gender diversity.
They captured $ 51.1 billion in net new money from investors in 2020 – the fifth consecutive annual record, according to Morningstar. In 2019, investors funneled approximately $ 21 billion into funds that apply environmental, social and governance principles.
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At the same time, ESG funds (also known as sustainable funds) accounted for about one-fourth of the money that flowed into all US equity and bond funds last year, Morningstar said.
That’s a record and a big jump from the 1% share in 2014, according to Jon Hale, director of research on sustainable investing at Morningstar.
Climate Change, Black Lives Matter
The millennial generation is “starting to get going,” said Hale. Young investors have more assets to invest and are moving on to decision-making institutions at institutions that invest, such as endowments and pensions, he said.
‘We see so much money coming in [ESG funds] because we see investors raving about the concept, “said Hale.” They have these concerns about sustainability and are starting to realize that we can address them with our investments. “
More choice from ESG funds
Investors also have more choices than ever before, Hale said.
The number of sustainable funds available to US investors grew to nearly 400-30% more than in 2019 last year and nearly quadrupled in a decade, according to Morningstar.
Meanwhile, ESG funds could receive a further boost if Biden’s administration wants to make it easier for companies to offer sustainable funds to employees in 401 (k) and other workplace retirement plans, Hale said.
“That market has trillions of dollars that are not invested significantly in sustainable funds,” he said.