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Investors poured record amounts into funds last year to help the environment and promote social benefit, which more than doubled.
Funds that use so-called ESG principles can, for example, invest in energy companies that are not dependent on fossil fuels, or in enterprises that promote racial and gender diversity.
According to Morningstar, they raised $ 51.1 billion in net new money from investors in 2020 – the fifth consecutive annual record. In 2019, investors invested about $ 21 billion in funds that apply environmental, social and governance principles.
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At the same time, according to Morningstar, ESG funds (also known as sustainable funds) account for about a quarter of the money that flowed into all U.S. equities and bond funds last year.
According to Jon Hale, director of sustainable investment research at Morningstar, this is a record and a big jump from the 1% stake in 2014.
Climate change, Black Lives Matter
The millennial generation is starting to ‘make its progress’, Hale said. Young investors have more assets to invest and move into decision-making roles at institutions that make investments, such as donations and pensions, he said.
‘We see so much money flowing in [ESG funds] because we see investors enthusiastic about the concept, “Hale said. They have this concern about sustainability and are starting to realize that we can address it through our investments. “
More choice of ESG funds
Investors also have more choices than ever before, Hale said.
According to Morningstar, the number of sustainable funds available to U.S. investors increased to nearly 400 last year – up 30% from 2019 and nearly quadrupling over a decade.
Meanwhile, ESG funds could get a further boost if the Biden administration wants to make it easier for businesses to offer sustainable funds to employees in 401 (k) and other retirement plans, Hale said.
“The market contains trillions of dollars that have not been significantly invested in sustainable funds,” he said.