The number of sustainable fund launches fell sharply in the first three months of 2023, Morningstar data has revealed.
According to the firm’s latest quarterly report, there were 113 new sustainable funds launched in the quarter around the world – the lowest number since the start of 2020. Previously, Reuters wrote, new launches had exceeded 200 in every quarter since that time.
Morningstar did, however, expect this number would increase through the year, adding: “An estimated 113 new sustainable funds hit the shelves globally in the first quarter. This represents a slowdown in product development activity compared with past quarters. However, this number will likely be higher in our next report as we identify more launches and additional ones are reported to Morningstar.”
The firm laid out the reasons for the slowdown, explaining: “The cooldown in new sustainable product development was entirely driven by a significant reduction of new sustainable fund launches in Europe, which slumped by almost two-thirds. In contrast, product development in the US and the rest of the world continued their momentum.”
Sustainability preferences
Morningstar also noted the assets within European sustainable funds were reaching an all-time high. “Despite lower inflows, assets in European sustainable funds rose for the second-consecutive quarter and reached $2.3tn [€2.08tn] at the end of March 2023, up 8.2% from December 2022,” it wrote. “Meanwhile, assets in the overall European fund universe inched ahead by less than 3%. As a result, the market share of sustainable funds in Europe rose to 22% from 18%.”
The firm predicted: “Sustainable funds should continue to gain ground as investor demand grows for strategies that align with their sustainability preferences, prompting asset managers to launch additional sustainable products and repurpose existing conventional ones. The MiFID II amendment, which came into effect in August 2022 and which requires financial advisers to consider their clients’ sustainability preferences, has the potential to accelerate adoption of sustainable investments among retail investors despite macroeconomic headwinds.”
Fossil fuel investors
Elsewhere, The Brussels Times has highlighted the biggest European investors in fossil fuel companies are banks, insurance groups and pension funds. According to that paper, the German environmental NGO Urgewald has collated data on this issue, stating the biggest fossil fuel investor on the continent is the Norwegian government Pension Fund Global, with more than €37.25bn worth of shares and bonds in oil, gas, and coal.
The Brussels Times observed: “Banks and financial groups make up the bulk of European investors in the world’s most polluting industry: Crédit Agricole (France), UBS (Switzerland), Legal & General (UK) and Deutsche Bank (Germany) are the top investors after Norway’s GPFG. All have more than €17bn tied up in fossil fuel shares and bonds, according to the financial data collected by the German environment NGO Urgewald.”
For its part, Urgewald has been very forthright on the issue, noting on its website: “If Europe were a country, it would be the world’s second largest source of institutional investments in the fossil fuel industry ($369bn). The largest sum from combined EU and non-EU states, $100bn, is held by institutional investors from the UK. Canada ($149bn), and Japan ($126bn) are No.3 and No.4 in the ranking.”
It added: “In Europe, the UK accounts for fossil fuel investments of almost $100bn. The largest UK investor in fossil fuels is the insurer Legal & General ($14bn). Seconnd in the European country ranking is Norway ($59.6bn), thanks to its Government Pension Fund, whose fossil investments of $40.9bn make it Europe’s single largest institutional investor in fossil fuels.
“Third in the European country ranking is Switzerland ($48bn), whose largest fossil investor UBS already held fossil shares and bonds worth $20.8bn before it took over Crédit Suisse. Fourth in line is France ($46.6bn), with its huge asset manager Amundi. Owned by Crédit Agricole, it holds fossil shares and bonds in value of $21.5bn. Germany ($45.9bn) holds fifth place in Europe. Its largest fossil investor is Deutsche Bank with its asset manager DWS, which holds $17.7bn in coal, oil and gas companies.”
