Sustainable funds saw inflows of $20 billion in the first half of 2024, with assets rising to $3.5 trillion.
A recent Morgan Stanley report revealed that sustainable funds modestly outperformed traditional ones, posting a median return of 1.7% vs traditional funds’ 1.1% in H1 2024.
The enhanced performance was driven by growth in large-cap equities, which comprise a larger proportion of sustainable funds – 57% compared to 39% for traditional funds. Equities were the best-performing asset class in the given period, so bigger exposure to this asset means greater profit.
Moreover, in the past five years, sustainable funds have delivered superior median returns during most time intervals reported. Thus, returns on 2018 investments in sustainable funds are now 4.7% higher than the median performance of the same period investments in traditional funds.
Sustainable fund assets under management (AUM) globally reached a new high of $3.5 trillion, up 3.9% from the end of 2023 and contributing to 7.0% of the total AUM.
The strongest returns were seen in the North and South Americas. Median returns for sustainable funds investing in the region were +8.8% (vs its traditional peers’ +3.4%). The performance is outstanding compared to global funds’ +2.2% and Europe-focused funds’ -0.1%.
The research classifies sustainable funds as those “focusing on sustainability, impact investing, or environmental, social or governance (ESG) factors”. Such funds must commit to a sustainability objective, and/or use binding ESG criteria for their investment portfolio selection.
Such funds seek to invest in companies that operate responsibly, promote sustainability, and create positive social or environmental impact. They prioritize companies focused on clean energy, ethical labour practices, and strong corporate governance. Sustainability-focused funds cater to investors who want to align their financial goals with their values of environmental stewardship and social responsibility.
We have earlier reported that cleantech and sustainability-focused tech funding categories managed to maintain stable investment inflows and remained flat in 2023, collectively gathering approximately $13.9 billion.
