Europe is leading the way in sustainable, responsible, and impact investment funds, accounting for more than 85% of the SRI sector in the first quarter of the year which saw $26 billion (€23.3 billion) in inflows worldwide.
The figures, published in a report on sustainable fund flows from Impactvesting, also showed that the sector enjoyed record inflows last year of $76 billion.
According to the report's author Jag Alexeyev, product development has played an important role with new funds capturing 40% of inflows to sustainable strategies last year.
Responsible investments now have more than $1.3 trillion in assets through various registered investment products such as exchange-traded funds (ETFs), European Ucits, and US mutual funds, according to the research and consultancy company.
An increasing slice of European sustainable funds activity is made up of cross-border international funds sold throughout the region and internationally by “a wide range of money managers, including global firms that now recognize the accelerating demand for environmental, social and governance (ESG) capabilities”, said Alexeyev.
Over the past five years, local Europe and cross-border markets generated €178 billion of net flows into responsible investments, making up 87% of the total €205 billion worldwide, according to Impactvesting.
“Investment managers recognize sustainability, ESG integration, shareholder engagement, and stewardship as essential to their future success”, said Alexeyev.
“With a robust ESG approach, fund companies can unlock distribution potential, reduce risks for clients and for their own organizations, and align capital to promote better long-term outcomes for all stakeholders.”
Climate and environment-themed strategies are gaining popularity. Investors put $10 billion into funds directly addressing themes such as climate change, the environment, renewable energy and fossil-free strategies last year. This accounted for 13% of total flows into responsible investment funds around the world.
Innovation can be found across the board, according to the report, not just in mainstream equity and debt asset classes, but also in alternative strategies such as green bonds and microfinance.
Alexeyev predicts that responsible investment funds will attract at least $0.5 trillion of new money over the next five years, serving as “a beacon for active investment managers”.
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