2019 was a boffo year for sustainable investing. Not only did fund flows explode, setting new records, but performance excelled.
According to a new report from Morningstar, sustainable asset fund flows reached a record $21.4 billion in 2019, four times the amount in the previous year, and the number of sustainable mutual funds and ETFs increased by more than 30.
As of the end of 2019, there were 303 sustainable funds, compared with 270 last year, and 564 funds that consider environmental, social and governance factors in their investment strategy, up from 81 funds in 2018.
Many sustainable funds also outperformed their traditional fund counterparts in 2019. Thirty-five percent of sustainable funds finished 2019 in the top quartile for performance and two-thirds ended in the top half, according to Morningstar.
Sustainable equity funds did even better, with 41% ranking in the top quartile of their respective categories and 68% placing in the top half. Fixed income sustainable funds, in contrast, clustered in the middle two quartiles, performing in line with the averages of traditional funds in the same categories.
Beyond these data points are the recent announcements by BlackRock that sustainability is its “new standard for investing” and by State Street championing the importance of sustainability in investment strategies. On Tuesday, JPMorgan announced that it will no longer finance oil and gas drilling in the Arctic or mining for coal, as Goldman Sachs had announced previously, and will allocate $200 billion by 2025 to finance sustainable projects.
Morningstar expects asset managers will continue to introduce new sustainable funds, which come in three types: ESG focus; impact/thematic funds, which use diversified strategies in lieu of conventional ones across most asset allocations; and sustainable sector funds, which invest more narrowly in industries and companies that produce sustainable products and services needed for a transition to a low-carbon economy.