Patrick Pleul / alliance image via Getty Images
Investors poured record amounts of money last year into funds that aim to help the environment and promote social good, more than double the revenue from the previous year.
Funds using so-called ESG principles can, for example, invest in energy companies that are not dependent on fossil fuels or in companies that promote racial and gender diversity.
They captured $ 51.1 billion in net new money from investors in 2020 – the fifth consecutive annual record, according to Morningstar. In 2019, investors channeled around $ 21 billion in funds that apply environmental, social and governance principles.
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At the same time, ESG funds (also known as sustainable funds) accounted for about a quarter of the money that flowed into all U.S. stock and bond mutual funds last year, according to Morningstar.
It is a record and a huge leap from the 1% stake in 2014, according to Jon Hale, director of sustainable investment research at Morningstar.
Climate change, black lives are important
The millennium generation is starting to “catch up,” said Hale. Young investors have more assets to invest and are taking on decision-making roles in institutions that make investments, such as donations and pensions, he said.
“We are seeing a lot of money flow to [ESG funds] because we see investors excited about the concept, “said Hale.” They have these concerns about sustainability and are beginning to realize that we can address them through our investments. “
More choice of ESG funds
Investors also have more options than ever, said Hale.
The number of sustainable funds available to American investors has grown to almost 400 in the past year – a 30% increase from 2019 and an almost four-fold increase in a decade, according to Morningstar.
Meanwhile, ESG funds could receive additional momentum if the Biden management seeks to make it easier for companies to offer sustainable funds to employees in the 401 (k) plan and other professional retirement plans, said Hale.
“This market has trillions of dollars that are not invested to a significant degree in sustainable funds,” he said.