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There’s no hotter area on Wall Street than ESG with sustainability-focused funds nearing $2 trillion

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Sustainable funds saw record inflows in the first quarter, increasing global assets under management in ESG funds to nearly $ 2 trillion, according to a report published by Morningstar on Friday.

The increase highlights the momentum behind ESG investing or when environmental, social and governance factors are considered. The assets of this type of fund exceeded $ 1 trillion for the first time in the second quarter of 2020.

Global sustainable funds hit a record $ 185.3 billion in the first quarter of 2021, up 17% from the previous quarter. Overall, ESG fund assets grew 17.8% from the fourth quarter of 2020.

“2021 started where 2020 left off record demand for sustainable investment options around the world,” said Hortense Bioy, global director of sustainability research at Morningstar.

Europe accounted for over 79% of the total flow of funds, although other regions are providing more and more ESG funding.

In the US, sustainability funds saw net inflows of nearly $ 21.5 billion, a new record. The number more than doubled year over year from $ 10.4 billion in the first quarter of 2020 and was about five times the flows in the first quarter of 2019.

According to Morningstar, the five funds that saw the most inflows in the first quarter were: iShares Global Clean Energy ETF, iShares ESG Aware MSCI USA, First Trust Nasdaq Clean Edge GreenEnergy, iShares ESG Aware MSCI EAFE and iShares ESG Aware MSCI EM.

Sustainable funds that attracted the most money in the first quarter

Fund name ticker Q1 flows in billions
iShares Global Clean Energy ICLN $ 1.98
iShares ESG Aware MSCI USA ESGU $ 1.33
First Trust Nasdaq Clean Edge GreenEnergy QCLN $ 1.00
iShares ESG Aware MSCI EAFE ESGD $ 0.87
iShares ESG Aware MSCI EM ESGE $ 0.82

ESG investing was already gaining momentum before the pandemic broke out. But it has been accelerating since then, driven by a number of factors including Covid’s disproportionate toll on minorities, social unrest in the US, as well as devastating forest fires and deadly winter storms.

“Over the past year there has been broad consensus on the need to address climate risk in investment portfolios,” Morningstar said in a recent report. “More and more investors are seeing the green transition to a low-carbon economy as an investment opportunity. As a result, asset managers are rapidly developing new risk management solutions, bringing innovative products to market and upgrading existing ones to help investors decarbonise their portfolios and invest in green solutions . ” “added the company.

“ESG” is an umbrella term that can contain a large number of different investment strategies, which is why it has been criticized in some cases. Opponents cite a lack of transparency.

For the “E”, Morningstar stated that at the end of 2020 there were 400 climate-conscious funds. The company stated that these can be broken down into five categories: low carbon, climate conscious, environmentally friendly, climate solutions and clean energy / tech.

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Robert Dunfee