ESG Funds Hit $1 Trillion, A Significant Milestone

ESG Funds Hit $1 Trillion

Sustainable investing is showing signs of strong recovery even in the midst of the Covid-19 pandemic ( Learn more ).  
The feat is all the more remarkable when one considers the pace at which sustainable investing has grown, and how recently it was able to establish itself as something more than a branding initiative. 
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Impressive Growth of ESG Funds
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Now, after three years of steady capital inflows and an impressive rebound during the coronavirus market sell-off, it is abundantly clear that sustainable investing is here to stay. This indicates growing investor interest in environmental, social, and governance (ESG) issues ( Learn more ).
Rating agency Morningstar found that these sustainable funds were up 72% in the second quarter of this year. Sustainable funds hit a record high of $1.06 trillion at the end of June – an increase of 23% from the previous quarter.
All of this growing interest in ESG investing ( Learn moreStates. 
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Europe Leads the Way
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Europe leads the way, as the dominant, most developed, and most diverse market for sustainable funds. Some 2,703 funds that use ESG criteria are European, out of 3,432 globally. These 2,703 funds account for $870 billion in assets, and in the second quarter of 2020 they attracted almost 86% of global capital. 
Much of this is being driven by Covid-19-related changes in the European political landscape. The EU’s coronavirus relief package and its so-called Green Deal are already scheduled to pour about $1.23 trillion into sustainable investments. 
Key European Projects 
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Some of the types of projects that stand to benefit in Europe include electric mobility, energy-efficient upgrades to commercial and residential buildings, water infrastructure and renewable energy generation. 
The American Angle 
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The situation is different in the United States. There, major pension funds, such as Calpers, have led initiatives such as Climate Action 100+ to put pressure on major polluters, entities responsible for large amounts of CO2, to set emissions targets, make financial disclosures, and seek to focus their boards on climate-related issues. 
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Rating Systems Still A Challenge 
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While the growth of ESG investing is a welcome development, it has still come with growing pains. One key challenge is dealing with various rating systems.
According to Lady Lynn Forester de Rothschild, founder of the Coalition for Inclusive Capitalism and a director of Estee Lauder, a key challenge for her company is dealing with different investor questionnaires. 
Lady Forester de Rothschild says that “over 150 ratings systems exist, covering over 10,000 sustainability performance metrics, that are trying to fill in the gap that is left by the lack of a generally accepted standard.”
Scoring highly on ESG ratings typically requires companies to assess supply chains and employment practices. Doing this can yield unexpected benefits for sustainability ( Learn more ). 

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