Investing in ESG funds means believing in sustainable finance but also in the earnings that the green economy will bring in future investments.
Sustainable funds are a particular category of investments that in recent years has attracted the attention of investors. But for what reason? Because the green economy and sustainable finance are a sector that will surely be among the most profitable in the coming years.
What are sustainable funds (ESG funds)
Sustainable funds are funds that use environmental, social and corporate governance (ESG) criteria to evaluate investments or their social impact. They can be linked to a specific sustainability issue or explicitly aim to create a measurable social impact.
Sustainable funds must be distinguished from funds that use simple criteria based on different measurement values, or from funds that use criteria based on some principles (including religious) to limit their investments.
Of course, there are common elements among all these categories of funds that can lead to sustainable investments. For example, all these funds may well recognize the fact that investing can actually have a positive impact if it stimulates a global low-carbon economy.
However, sustainable finance also has a value-oriented component that many investors find equally important: the idea that integrating ESG criteria into an investment process could add information that would be overlooked in traditional financial analysis and therefore could contribute to reduce the investment risk.
Sustainable funds: performance and how many
ESG funds outperformed the fund industry as a whole in 2017. The returns of over half of the suistainable funds, equal to 54%, were classified in the first half of the respective categories and this result was consistent for all equity and bond funds.
Sustainable funds are growing: at the end of 2017 there were 235 ESG funds in 56 categories available to US investors, in the last three calendar years 102 sustainable funds have been launched, 43% of the entire category of these financial instruments. Of these, 67 are open-ended funds and 35 are ETFs, another 23 are pre-existing funds which have added ESG criteria to their investment process over the past two years.
Total assets under sustainable management stood at $ 95 billion, after two consecutive years of record net flows.