Demand for climate-conscious funds gains momentum

Morningstar's ESG fund analyst Samiya Jmili writes for ESG Clarity on investors looking beyond renewables

Global climate funds’ assets have doubled in one year, boosted by continued fund flows and an accelerated pace of product development, reaching $408bn (£326.4bn) worldwide in December 2021.

Within those, climate-conscious funds have overtaken clean energy/technology in popularity.

According to Morningstar research, low-carbon funds provide the greatest shield from carbon risk but offer little in the way of climate solutions.

Conversely, clean energy/tech funds offer high exposure to climate solutions, but also currently hold the greatest carbon risk in the bunch.

These differences make it crucial for investors to carefully consider their green preferences and carbon-risk appetite when choosing a climate product.

They should also understand the funds’ investment objectives and investment process, ensure they are comfortable with the level of carbon exposure offered and, crucially, look at the funds’ holdings to avoid any nasty surprises.

Read the full comment in ESG Clarity‘s May 2022 digital magazine.