The growth of responsible investing

Long-term growth in responsible investment proves resilient amid market uncertainty.

Today, there is a growing awareness of the potential impact that ESG issues can have on investments. In the United Kingdom, about 80% of potential investors would be more likely to invest if there was a guarantee they were avoiding unethical companies or that their money could create a positive impact.[1] And in the US, according to a Morgan Stanley poll, 85% of investors expressed an interest in sustainable investing, up from 71% in 2015. [2]

Growing  awareness has been mirrored in fund flows. 2020 was a pivotal year for responsible investment, with ESG fund assets reaching USD 1.65 trillion, on the back of record inflows. The longer-term shows inflows into European sustainable funds almost 5 times higher in 2020 than they were three years previous and almost double what they were in 2019, at USD 273 billion.  Globally, inflows into sustainable funds were up 88% in the fourth quarter of 2020 to USD 152.3 billion.[3]

Exhibit 1. Quarterly Global Sustainable Fund Assets (USD Billion)

More recently, amid a broad market slowdown, global sustainable fund assets tapered off to USD 2.77 trillion in March 2022 from USD 2.89 trillion at the end of last year. For the first time since the first quarter of 2020, sustainable fund assets experienced a dip (nearly 4%). Year-on-year, however, the global sustainable fund universe expanded by 38%.[4]

According to the latest data from Morningstar, amid investor concerns over inflationary pressures and the war in Ukraine, sustainable funds still held up better than the broader market, which saw inflows slump by 73% over the period. The 4% quarterly decline was also less pronounced than the 5.5% dip for the broader market.[5]

[1] Boring Money Insights. 2019. “ESG Investing: The Retail Appetite.” September 2019

[2] Morgan Stanley Sustainable Signals. 2021

[3] Morningstar. Global Sustainable Fund Flows: Q4 2020 in Review. Available at: https://bit.ly/3ojUR7n

[4] Morningstar. Global Sustainable Fund Flows: Q1 2022 in Review. Available at: https://bit.ly/3ILoTdT

[5] Morningstar. Global Sustainable Fund Flows: Q1 2022 in Review. Available at: https://bit.ly/3ILoTdT