Home / ESG / Sustainable funds boom surges to another record

Sustainable funds boom surges to another record


Flows into ESG-focused managed funds hit a record $2.9 billion during the June quarter, as total assets in that group jumped 66 per cent for the full 12 months, according to the latest report by Morningstar, for Australia and New Zealand.

  • The report, based on a universe of 135 Australia and New Zealand ‘sustainable funds,’ shows total assets reached $33.42 billion, which was an 18 per cent rise on the March figure and 66 per cent up on the end of June last year.

    Christopher Franz, Morningstar’s manager research and senior analyst for ESG, said the “blistering pace” in the sustainable funds market involved the highest quarterly flows on record. There were three new funds launched in the quarter.

    Despite the acceleration in growth for the sector, Australia and New Zealand remain behind some overseas markets in product offerings for the sustainable funds market. Australasia was still relatively small compared with the US and Europe, the report said.

    The Australasian market was also relatively concentrated, especially at the very top. The ten largest funds account for 74.9 per cent of the market, while the top two – Vanguard and Australian Ethical Investment – account for 20.1 per cent and 18.2 per cent respectively. The only NZ manager in the top 20 is Simplicity, which is ranked ninth, with 3.2 per cent.

    Unlike the rest of the public markets, however, actively managed fund flows and total assets were not dominated by managers with more passive strategies. The three with index or index-like strategies in the top ten are Vanguard, BetaShares (with 8.5 per cent) and Dimensional Fund Advisors with 5.8 per cent, accounting for 34.4 per cent of total assets in the top ten for the sustainable group.

    What Morningstar refers to as “allocation funds,” including factor and multi-sector funds, slightly topped equity strategies for flows over the June quarter, gathering $1.24 billion, behind strong showings from Pendal Sustainable Balanced, Pendal Sustainable Conservative, and Australian Ethical Balanced. 

    The report noted that ASIC announced a greenwashing-related review in early July following regulation offshore, particularly in Europe. New Zealand also announced mandatory climate disclosures for financial organisations in April 2021, which are set to take effect in 2023.

    For its part in allowing better transparency for investors concerned about the greenwashing issue (whereby managers are less committed to the ESG philosophy and more interested in appearances), Morningstar has commenced assessing all managers on the research house’s own ‘ESG Commitment Level.’ This looks at philosophy as well as process, resources and active ownership considerations.

    A total of 102 funds in the 135, for instance, have an exclusion policy for certain stocks, the most common being the exclusion of tobacco stocks and those involved in controversial weapons.

    Greg Bright

    Greg has worked in financial services-related media for more than 30 years. He is a former economics writer for the Sydney Morning Herald and assistant editor and business editor for the Australian Financial Review. Greg has founded many magazines, newsletters and conferences in the funds management industry. Titles he has launched include: Super Review, Investor Daily, IFA, Investor Weekly, Investor Supermarket, SMSF Magazine, the Blue Book, Investment Magazine, I&T News, Professional Planner, Top1000Funds.com, IO&C News, Investor Strategy News and New Investor.

    Print Article

    Can banks… be good? Why ethical investors don’t automatically shun the big financials

    The banks may not be perfect, but their collective role in facilitating a developed ecosystem, combined with the leverage they have through lending and capital allocation, means they often fall within Australian Ethical’s “investible universe”.

    Staff Writer | 18th Apr 2024 | More
    Surging equity markets highlight importance of valuation discipline: Australian Ethical

    An elevated market is a good thing, but investors that take a valuation mindset into asset allocation need to be wary of what that means for prices. “Chasing momentum” is a real danger, says Australian Ethical’s Mark Williams.

    Staff Writer | 7th Mar 2024 | More
    Difficult conditions suit small caps, active management: Atchison

    Australia may not have the Magnificent Seven tech stocks, but a heavy top end on the ASX means concentration risk is just as present, Atchison’s says. According to Australian Ethical, that puts the domestic small companies sector right in frame for investors.

    Drew Meredith | 22nd Feb 2024 | More
  • Popular posts: