Opalesque Industry Update – Europe remains the key driver behind sustainable finance, holding 83% of global sustainable funds’ net assets, according to the second annual European Sustainable Investment Funds Study by Morningstar and zeb, powered by the Association of the Luxembourg Fund Industry (ALFI). The study found that the net assets in sustainable fund products based on Morningstar’s strict definition of sustainability have reached almost EUR 2 trillion at the end of 2021, up 71% from 2020.
This study aims to provide a snapshot of how sustainability objectives and the respective legislative interventions are shaping the fund industry in Europe and to analyse the role, competitiveness, and positioning of the different domiciles within this dynamically changing environment. It is the second of a series of regularly conducted studies based on an analogous approach to monitor the dynamic development and trends of the European sustainable funds’ sector.
1. Net assets in sustainable funds domiciled in Europe have reached almost EUR 2 trillion in 2021 – this figure is three times as high as in 2019 and up 71% from 2020. The share in total net assets went up to 16%, and half of the net flows were attracted by the sustainable sector.
2. Equity remains by far the most important asset class of sustainable funds. The integration of ESG factors into money market funds has significantly accelerated, resulting in a share of 25% in total net assets of money market funds.
3. Sustainable passive funds continue their disproportionate increase, now reaching a 27% share in sustainable assets, as opposed to a share of passive funds of only 21% in the conventional fund sector.
4. At the European level, about 44% of net assets were invested in funds classified by their managers as Article 8 and Article 9 funds according to the Sustainable Finance Disclosure Regulation (SFDR).
5. Europe remains the forerunner in terms of sustainable investment funds with a market share of 83% of the total EUR 2.4 trillion in net assets considered sustainable in the major global fund domiciles – far ahead of the US and Asia.
Marc-André Bechet, Deputy Director-General of ALFI, commented: “Sustainable finance is at a crossroads and 2022 will lead to a moment of truth. While there is a genuine willingness of the asset management industry to meet the challenges of sustainable finance and strong demand from retail and institutional investors alike, the reality is that, so far, funds which pursue one or several environmental objectives have not really been able to show their true credentials. However, companies are now starting to report on the alignment of their activities in line with the Taxonomy Regulation, and for those that do not yet do so, reporting will be required from 2023 and 2024 onwards. Which I believe is a crucial step forward.”
Hortense Bioy, Global Director of Sustainability at Morningstar said: “Since its introduction in March 2021, SFDR has acted as a catalyst for product development and innovation in the European sustainable funds space. It will be fascinating to see how regulation continues to shape the landscape. The changes to MiFID II taking effect in August and requiring financial advisers to consider their clients’ sustainability preferences have the potential to accelerate the adoption of sustainable investments among retail investors. Despite all the concerns about greenwashing, our data shows that investor appetite for ESG and sustainable strategies is still growing.”
Dr. Carsten Wittrock, Partner at zeb, added: “Our new study confirms the forecasts we made in our previous edition: the industry’s shift towards sustainability is progressing at high speed despite an unprecedented dynamic geopolitical and regulatory environment. Although there is still quite a long way to go before the full potential of the fund industry in supporting the urgently needed transformation process of the economies toward greater sustainability is unleashed, it is safe to conclude that the trends highlighted will continue – despite the critical discussion about the role and handling of sustainability by individual asset managers, the ongoing need to clarify sustainability factors and their appropriate implementation, and the recent setbacks in tackling climate change due to the tragic conflict in Ukraine and its drastic consequences not only for the people but also the global economy.
Download the study here.