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Fierce competition brewing to be Europe’s sustainable fund hotspot

Luxembourg tops the rankings but it is followed closely by Ireland, Sweden and France


Pete Carvill

A report from Morningstar and Zeb has found the leading domicile for conventional and sustainable funds by net assets is Luxembourg – but other jurisdictions are not resting on their laurels.

The European Sustainable Investment Funds Study said that the second-placed country in Europe is Ireland, followed by Sweden and France. The study also found that Europe holds 83% of global sustainable funds’ net assets, reaching almost €2trn at the end of 2021, up 71% from 2020

The report’s authors wrote: “Overall, European net assets for both conventional and sustainable funds increased by 27% over the period from 2019 to 2021. Net assets of sustainable funds increased disproportionately compared to those of conventional funds by as much as 180% in total Europe – 215% and 174% in Luxembourg and the rest of Europe, respectively. Over the same period, conventional funds’ net assets grew by 15% only.”

It was also apparent, said the authors, that sustainable funds were attracting half of all inflows over this period.

They wrote: “Net flows were positive across Europe over the period from 2019 to 2021. For the whole of 2021, European funds considered in this study attracted €818bn in net new money, which was double the amount of 2020, with a stable 50% share of flows directed towards sustainable funds. That means a 239% increase in absolute net new money in sustainable funds compared to 2019 over the three-year period.”

Of this growth, 43% was directed towards Luxembourg, which also saw 38% of the money directed towards sustainable funds last year.

The report added: “Interestingly, the share of net flows into sustainable funds has significantly and steadily increased across all domiciles but Luxembourg, which exhibited a share of 45% as opposed to an average share of 54% for the other European domiciles in 2021. This is also reflected in the 329% increase in net flows into sustainable funds domiciled in the rest of Europe over the three-year period as opposed to 198% in Luxembourg. These dynamics show the increasingly broad acceptance of sustainable funds across Europe and the fierce competition between the different domiciles.”

“Strikingly,” wrote the authors in one section, “some domiciles like the UK, Switzerland and France saw 100% of their net flows directed towards sustainable funds at the expense of conventional funds which exhibited net outflows.”