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Luxembourg leads the way as ESG inflows rise

‘European sustainable investment landscape evolving extremely rapidly’


Pete Carvill

More than half of all new inflows into Europe in 2020 were directed at sustainable fund products, according to a new study from Morningstar, zeb, and the Association of the Luxembourg Fund Industry (Alfi).

The information, contained in the first European Sustainable Investment Funds Study, found that 11% of total net assets within Europe were in sustainable funds. Of new inflows last year, sustainable funds accounted for 52%.

The study also found that Luxembourg was the leading domicile for sustainable funds, accounting for €371bn by the end of 2020 and capturing 44% of total net flows made across all European domiciles in 2020.

Hortense Bioy, global director of sustainability research, manager research, at Morningstar said: “The European sustainable investment landscape continues evolving extremely rapidly.”

She added: “Record ESG fund flows, assets, and product development activity, combined with the most ambitious regulatory agenda, all herald a new era for sustainable investing in Europe. ESG funds can no longer be seen as a niche area of the European funds landscape.”

Rapidly changing environment

The news about the increasing importance of ESG products within the investing landscape follows research from Vontobel Asset Management that more than half of institutional investors and intermediaries already allocate at least a fifth of their equity portfolios according to a thematic approach. Respondents to the same survey said that they viewed climate change and ESG as one of the top themes.

However, Expert Investor reported a few weeks ago that fossil fuels still attracted more cash investment from G7 nations than renewables, suggesting that there is still some distance to travel. That research by the charity Tearfund found the difference between fossil fuel investment and renewables to be $42bn. This figure, said Tearfund, was “[…]  inconsistent with the steep decline in emissions needed to limit global warming”.

And, in other news, the UK government recently announced the formation of its Green Technical Advisory Group to advise on standards for green investment. At the time, the group was described as having the remit to prevent ‘greenwashing’ in investment products.

The full European Sustainable Investment Funds Study report is set to be made available from the beginning of July 2021.