European sustainable funds investments reached €1.1trn in 2020

According to Morningstar, investments in European sustainable funds rose by 52 percent in the past year to hit €1.1trn in December 2020, led by large inflows, repurposed assets and growing financial markets.

The recent European Sustainable Funds Landscape study showed that the European sustainable funds raised a record high of EUR 233 billion in 2020, nearly double the previous year and 10 times more than five years ago.

Sustainable fund flows returned quickly after the downturn in inflows during the Covid-19 market shock in the first quarter to hit record highs in the fourth quarter, just short of EUR 100bn in net new capital.

BlackRock was Europe's top supplier of renewable assets, raising more than triple the flows recorded by its closest competitor, Amundi.

The study also outlined how, through their fund offerings, more asset managers are reducing exposure to fossil fuels.

BlackRock divested from businesses making more than 25% of their revenues from thermal coal in its discretionary active investment portfolios.

BNP Paribas Asset Management, meanwhile, is withdrawing firms that generate just 10% of their profits from coal mining, while also divesting from high-carbon-emitting power firms.

In addition, Robeco has barred companies that derive 25% of their sales from oil sands or 10% from Arctic drilling, while Swedbank Robur excludes nearly all investments in the production of oil, gas, and electricity.

Passive funds, including UBS MSCI SRI ETFs and Xtrackers MSCI ESG ETFs suites, have also decreased their exposure to fossil fuels by either changing indices or monitoring indices that have tightened their fossil fuel screens.

Product launches reached a milestone last year, with 505 new funds coming into the market, while 253 traditional funds were repurposed.

The fourth quarter achieved an all-time high of 147 new offers, taking the global European sustainable funds to 3,196 funds.

In recent years, passive funds have seen substantial growth in their market share and now account for 22.5 percent of the European sustainable investment market, up from 10.3 percent five years earlier.

There were 191 ETFs and 177 open-end funds tracking an ESG index as of December 2020. Assets in ESG ETFs ended the year at EUR 82.5 billion, up from EUR 32.1 billion in 2019 - a 156% rise.

"2020 might have been the year of the Covid-19 pandemic, but it was also the year that ESG and sustainable investing reached a pivotal point," said Hortense Bioy, global director of sustainability research at Morningstar.

"Record ESG fund flows, assets, and product development activity, combined with the most ambitious regulatory agenda to address climate change all herald a new era for sustainable investing in Europe.

"ESG funds can no longer be seen as a niche area of the European fund's landscape. From 11% today, we see ESG funds representing a much larger share of the overall fund market in the coming years."