President Donald Trump is emerging as a top salesman for sustainable investment assets, albeit an accidental one. Since January, investments in sustainable mutual funds and ETFs have grown almost to $3 billion — topping those inflows for all of 2014 and 2015, according to Morningstar. They’re now on track to surpass the net $4.8 billion in sustainable asset flows for all of 2016.
In addition, a dozen mutual funds or ETFs focusing on sustainable or ESG (environmental, social and governance) investing have launched in the U.S. so far this year, including the first such target-date funds for 401(k) accounts and two funds from Fidelity.
Nearly $9 trillion is invested in sustainable assets in the U.S., and the number of sustainable investment funds is close to 200, according to Morningstar.
“Trump has strengthened resolve of investors, particularly in the area of climate change,” says Jon Hale, Morningstar’s director of sustainability research. But he notes that “sustainable investing already had a lot of momentum prior to the presidential election.”
The Trump White House has pulled out of the Paris climate accord and has announced plans to revoke the Clean Power Plan adopted by the Obama White House that would require power plants to curb greenhouse gas emissions. But on Thursday, the Trump Environmental Protection Agency withdrew a one-year hold on stricter ozone standards adopted by the Obama White House following a federal lawsuit filed by 15 states and the District of Columbia.
White House announcements and actions to reverse environmental rules had some investors worried that sustainable and ESG funds and ETFs could underperform if companies abandoned their progress on such issues or incentives for clean energy and alternative fuels were abandoned, says Hale. But the opposite has happened.
Forty-five percent of sustainable U.S. large-cap blend funds (15 out of 33) outperformed the S&P 500 during the first half of 2017 while only 28% of large-cap blend funds did, according to Morningstar.
Moreover, 82% of funds focused on renewable energy, water and clean tech (14 out of 17) outpaced the S&P 500 during the first half.
Interest in ESG and sustainable investing is growing among retail and institutional investors. Morningstar notes that usage of ESG data in its Direct Cloud platform, used by asset managers, advisory firms and independent wealth managers, has quadrupled since Trump’s inauguration.
In addition, a growing number of institutional investors are clamoring for greater climate risk disclosure by companies. For example, more than 50% of shareholders voted in favor of such proxies at ExxonMobil and Occidental Petroleum in May, which was “a “big deal,” says Hale.
He explained that large asset managers such as Vanguard, State Street and BlackRock, who essentially “own the market, need to engage companies on ESG and sustainability issues.” They can’t divest of companies so they “want to make sure companies are taking climate change risk seriously.”
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