ESG assets in Europe hit record $1.4 trillion in 2020

Sustainable products made up more than 50% of all European fund assets last year.

More than half the money that flowed into European funds last year went into sustainable products, according to the Association of the Luxembourg Fund Industry, which represents the region’s biggest fund market.

As a result, a record $1.4 trillion in investor cash has now been steered toward strategies that address environmental, social and governance considerations, according to the study, which is the first in a series that ALFI is planning to do on ESG allocations. The development means that 11% of European assets under management are now in sustainable funds.

The study shows that total sustainable assets have more than doubled since 2018, adding to evidence that growth in some corners of ESG investing is approaching an exponential pace. Adeline Diab of Bloomberg Intelligence estimates that total ESG debt issuance surpassed $3 trillion in early June, with two-thirds of that amount generated over the past year and a half alone.

“The large investors, the pension funds, institutional investors, they have already said that in one or two years time they will not consider mainstream funds any more,” Marc-André Bechet, deputy director general at ALFI, said in an interview.

Asset mangers are devoting more attention to sustainable funds than to conventional funds, the study found. Launches of new ESG vehicles jumped by almost half in 2020 from a year earlier, while the number of new traditional products slipped 17%.

Funds are under intense pressure to document their ESG credentials as Europe rolls out an historic package of legislation designed to divert financing away from businesses that hurt the climate. Asset managers are now trawling through corporate data to decide what to cut in order to reduce their carbon footprints.