Experts say global sustainable investment funds growth will double following $1.7trn upsurge in 2020

Charles Abuede

According to research data analyzed by compraracciones, total sustainable funds is expected to double this year following the upsurge to $1.7 trillion last year amidst the pandemic. Similarly, investments in the environmental, social and governance-based (ESG) industry are expected to remain on a growth trajectory in 2021 as over 12 per cent of investors who do not put in funds in ESG currently are optimistic of a bullish move in the market, driving the uptick. As a result of the strong demand in the sector, funds flowing into ESG funds shot up by 88 per cent in the fourth quarter of 2020 to $152.3 billion.

In a report by the ESG industry tracker Morningstar, it was revealed that there was an incredible rise in ESG investments in 2020 with the total assets under management (AuM) in the sector rising to $1.7 trillion by the end of the year resulting from a 29 per cent advancement in the last three months of 2020. Meanwhile, growth in related funds is expected to continue in subsequent years as an additional 17 per cent of investors are with plans underway to move funds into the sector in 2022 or thereafter. The report also highlighted that 40 per cent of investors who will not invest in ESG funds in 2021 or 2022 will do so in the future, while only 30 per cent of investors do not have any plans to invest in ESG funds at all.

On the growth drivers, the report analyzed that the stimulus-driven recovery of the market, as well as investors’ search for more resilient investments, precipitated the increase. Also, the shift to a low carbon economy resulting from an accelerated push from governments across the globe and thereby resulting in a change in tax regimes and market rules to favour climate-friendly investments.  It has also given rise to the belief that companies with a good ESG score will post better performance over time.

Looking into the global chart showed that Europe-domiciled funds were dominant in the fourth quarter of 2020 and accounts for about 80 per cent of total inflows at $120.8 billion. Trailing as second, the United States contributed $20.5 billion of the net investment. However, on a collective basis, funds across Asia, Canada, Australia, New Zealand amounted to $11 billion.

Elsewhere in Asia, Japan leads and accounted for approximately 80 per cent of the total ESG funds trading on exchanges. Their total value amounted to $40 billion for the whole of 2020. China, on the other hand, holds a share of about 10 per cent of this total, Bloomberg Intelligence revealed. Noteworthy is the fact that China is anticipated to lead growth in the continent. Meanwhile, total ESG assets under management in China has risen by 1,700 per cent over the past two years.

Furthermore, analysis from Bloomberg Intelligence estimated that in 2021, China will contribute about 20 per cent to ESG funds in Asia. the report stated that the dominance will be pointed to the country’s push for electric vehicles and renewable energy, which will spark additional fund flows into the sector. JP Morgan, in its forecast and further giving credence to the projection by Bloomberg analysis, puts it that Asia’s sustainability funds which doubled in 2020, will be doubled again in 2021; stating that South Korea, Japan and China are among countries that have committed to achieving net-zero carbon emissions. China’s target for reaching carbon neutrality is the year 2060 while South Korea and Japan are targeting 2050.

 According to the forecast by JP Morgan in the report, to achieve its target, China will have to cut its reliance on coal.  From the current share of 60 per cent, coal use should drop to 2 per cent or 3 per cent while renewable power capacity should grow significantly. In the next five years, China’s solar power generation will double. China is currently rated as the world’s top greenhouse gas emitter, accounting for a 28 per cent share of worldwide emissions. Its emissions are higher than those of the US and the European Union combined.

Whereas, Morningstar in its analyzed data stated that in 2020, new investments into ESG funds hit a new record high of $51.1 billion in the US. This figure is now more doubled when compared to the amount recorded in 2019 and the fifth straight year of record annual growth. However, in 2019, market investors’ investment into ESG poured $21 billion into related funds. A year later, investments in sustainable funds accounted for about 25 per cent of all money flowing into stock and bond mutual funds. That was a remarkable jump from a mere 1 per cent in 2014.

Meanwhile, Refinitive in a report pointed that total assets under management in the US that triggered ESG factors to rise to $5 trillion with the space of 2 years which was majorly driven by the growing interest by younger generations in issues on climate change amongst other factors as investors have a wide range of options now than they had before. While over the previous 10 years to 2020, there was almost a fourfold increase during the period as the US investors had access to over 400 sustainable funds which grew by 30 per cent from last years.