Europe dominates sustainable fund universe

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  • Global sustainable funds attracted USD 32.6 billion of net new money in the second quarter of 2022
  • Sustainable funds still held up better than the broader market, which experienced USD 280 billion of net outflows over the period
  • Global sustainable fund assets slipped to USD 2.47 trillion (-13,3% vs. Q1/2022)

“Europe continued to make up the lion’s share of the sustainable fund landscape with 82% of global sustainable fund assets. It also remained by far the most developed and diverse ESG market, followed by the United States, which housed 12% of global sustainable fund assets through June 2022. Asia exJapan, of which China is the biggest sustainable market with more than 75% of the region’s asset base, ranked third in terms of sustainable fund market size”, as quoted by Morningstar (Global Sustainable Fund Flows: Q2 2022 in Review).

European sustainable fund assets amounted to USD 2.03 trillion or 82 % of total global sustainable fund asset of USD 2.47 billion. U.S. sustainable fund assets of USD 296 billion represent 12% of total sustainable fund assets. Asia ex-Japan represents 2% , Australia/New Zealand 1%, Japan 1% and Canada 1%.

The number of funds in Europe also dominates the fund landscape with 5.112 funds (76%), followed by the U.S. with 588 funds (9%), Asia ex-Japan with 386 funds (6%).

Asset managers continued to repurpose conventional products into sustainable offerings.

The Top 3 European sustainable fund providers by net flows in Q2/2022 were BlackRock (incl. iShares) with USD 5.9 billion, UBS with USD 3.4 billion and BNP Paribas with USD 2.9 billion. KLP, Goldman Sachs and Carmignac recorded the largest net outflows in Q2/2022 based on Morningstar data.

Developments on the regulatory side

“In the European Union, the European Financial Reporting Advisory Group, mandated by the European Commission, is consulting on its draft sustainability standards which, once finalised and endorsed by the European Commission will underpin the Corporate Sustainability Reporting Directive that will govern the disclosures required by EU listed companies.

Other aspects of the EU’s Sustainable Finance Action Plan continue to see goal posts moving in areas of regulations both already in effect and soon to be so.

The European Commission’s controversial Taxonomy Delegated Act to include specific nuclear and gas energy activities, under certain conditions, in the list of environmentally sustainable economic activities covered by EU Taxonomy passed through the Parliament and Council and will take effect on 1 Jan 2023.

Consequently, certain fossil gas and nuclear energy activities will be classified as transitional activities contributing to climate change mitigation.

The European Securities and Markets Authority, or ESMA, together with the European Banking Authority and European Insurance and Occupational Pensions Authority, issued clarifications on the draft regulatory technical standards issued under the SFDR.

The statement covered areas including the calculation of principal adverse impact indicators, or PAIs; the use of sustainability indicators; and taxonomy-related and “do not significantly harm” disclosures.

At the same time, the supervisory authorities have been tasked by the European Commission to review and potentially extend the entire PAI framework as well as assess financial product disclosure requirements, particularly around decarbonization targets. Separately, ESMA also published a supervisory briefing to ensure convergence across the EU in the supervision of investment funds with sustainability features, and in combating greenwashing by investment funds.

The briefing provides guidance for the supervision of fund documentation and marketing material, as well as guiding principles on the use of sustainability-related terms in funds’ names and guidance for convergent supervision of the integration of sustainability risks by alternative investment fund managers and UCITS managers.

All of these developments will be relevant to firms planning for the August MiFID II changes that will require sustainability preferences of investors to be incorporated into the suitability process. On a related note, ESMA has kicked off a review of its guidelines on MiFID II product governance requirements, and in particular a proposed addition to specify any sustainability-related objectives a product is compatible”, as reported by Morningstar

 

Morningstar: Global Sustainable Fund Flows: Q2/2022 in Review

 

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