The European sustainable fund universe clocked up a record-shattering year in 2019, setting new highs in flows, assets, and launches, Morningstar data reveals.
Morningstar research for the fourth quarter and full-year of 2019 showed European ESG funds pulled in record inflows of €120bn last year, propelled by unprecedented inflows of €47.3bn in the fourth quarter – up from €26.8bn in the third quarter.
Total assets in European sustainable funds closed the year at €668bn, up 56% from 2018.
Index funds and ETFs garnered just shy of €13bn in sustainable fund flows, accounting for 27% of total fourth quarter flows.
Two Aviva funds, AI Stewardship UK Equity and AI Stewardship International Equity UK, were among the best-selling sustainable funds in the fourth quarter, claiming €2.2bn in combined flows.
This follows the announcement last July that Aviva Investors would offer a workplace pension default investment strategy with funds dedicated to providing socially, ethically, and environmentally sound portfolios.
In the bottom 10 ESG funds were SPP Aktiefond Global A and Cleome Index EMU Equities, which saw outflows of €636m and €422m respectively.
Among sustainable fund providers in Europe, BlackRock topped the leader board again in the fourth quarter with €4.4bn in flows, followed by UBS and Amundi.
Product development showed no sign of abating, with 105 new sustainable offerings launching in the fourth quarter, bringing the total number of launches for 2019 to 360 and the overall number of sustainable funds domiciled in Europe to 2,405.
Meanwhile, asset managers continued to convert existing funds to sustainable investment offerings.
These include BMO European Equity, which was repositioned and renamed in October 2019 to BMO Sustainable Opportunities European Equity, while ODDO BHF Green Bond was converted the same month from ODDO BHF AccuZins.
Notably, 2019 saw a number of fund managers reduce exposure to or completely divest from fossil fuels.
For example, BlackRock lowered the exposure to fossil fuel companies in five iShares MSCI SRI ETFs. Equally, BNP Paribas launched three fixed-income SRI reduced fossil fuel passive funds.
Some asset managers are going a step further. In December, Swedish pension investment provider SPP Funds announced a plan to make its entire fund range fossil fuel-free for both environmental and financial reasons.
Meanwhile, Swedish rival Handelsbanken has almost completed its divestment of companies with activities in fossil fuel production, extraction, and distribution.
In total, Morningstar identified at least 160 funds in the European sustainable fund universe that explicitly state they either screen out or offer reduced exposure to fossil fuels, beyond thermal coal.
“2019 was a big year for sustainable investing and European sustainable funds, driven by increasing investor interest in ESG issues and a favourable regulatory environment,” Hortense Bioy, Morningstar’s director of passive strategies and sustainability research for Europe, said.
“As more investors look for ways to mitigate ESG risks, particularly climate risk, and align their investment portfolios with their values and sustainability preferences, we can expect the universe of sustainable funds and the money flowing into it to continue growing.”