ESG critics may rail against investments geared to sustainability and social good, but investors continue to pour money into the strategies.
For instance, global assets in funds with a climate-related mandate doubled to $408 billion in 2021, boosted by increased inflows and an accelerated pace of product development, according to Morningstar.
In the United States, climate funds set their third consecutive annual record for net flows in 2021, propelling assets in these funds over the $30 billion mark.
According to the report, “Investing in Times of Climate Change,” assets in U.S. climate funds grew by 45% to over $30 billion in 2021, but for the first time, China overtook the U.S. as the second-largest climate funds market behind Europe, more than doubling in size to nearly $47 billion.
U.S. climate funds had nearly $13 billion in net flows in 2021, a 43% increase over 2020’s record. Once again, Clean Energy and Tech-focused funds were the winners, attracting $7.2 billion, or 55%, of the total for the year, but their dominance peaked in the first quarter and declined steadily in subsequent quarters.
Additionally, a record 36 climate strategies were launched over the year, bringing the total number of climate funds in the U.S. to 82 at the end of 2021. Climate funds made up more than one-quarter of all funds launched in the U.S. in 2021.
In the U.S., 23% of 2021’s new climate funds focus on Climate Solutions, or companies whose products and services aim to contribute to the transition to a low-carbon economy.
For example, JPMorgan Climate Change Solutions ETF invests in companies developing sustainable forms of transportation and less carbon-intensive forms of construction and agriculture.
BlackRock U.S. Carbon Transition Readiness ETF broke the record for the largest ETF launch in April 2021, and Fidelity Environment and Alternative Energy Fund netted $474 million for the year, nearly eight times the fund’s net flows in 2020.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
