2021 sustainable investment flows highest on record

According to a newly released report from research house Morningstar, retail assets invested in Australasian sustainable funds amounted to a record AU$44.272 billion at the end of 2021, with the fourth quarter recording the highest flows throughout the year.

The report, Sustainable Investing Landscape for Australian Fund Investors, revealed the amount of assets invested had risen by 40% when compared to 31 December 2019.

The record-breaking fourth-quarter flows also stood at AU$3.617 billion, closely followed by the second-quarter flows of AU$3.449 billion.

Asset managers Vanguard and Australian Ethical dominated the year and accounted for 37% of all Australasian sustainable fund assets monitored by Morningstar. For the fourth quarter, Vanguard (AU$761 million) topped Mercer (AU$467 million), BetaShares (AU$419 million), Dimensional (AU$299 million) and Australian Ethical (AU$283 million).

Morningstar’s report also highlighted how the Australian sustainable funds market remains concentrated, with 88% of total sustainable assets held by the top 20 funds.

Morningstar also identified 121 Australian and New Zealand sustainable investments that exclude investing in certain areas deemed “controversial”, with 109 funds excluding tobacco and 102 funds excluding controversial weapons like nuclear weapons, land mines and cluster munitions. The next largest group of exclusions was gambling, adult entertainment and alcohol.

The report also said Australia’s sustainable funds market is comparably low to those in Europe and the United States after only nine new funds were launched in 2021, marking the slowest rate for fund launches since 2015.

One of the new launches, the ETFS Hydrogen Exchange Traded Fund (ETF), has already accumulated more than AU$87 million in funds since its inception in October 2021.

The report also included sustainability ratings conducted by Morningstar on 115 funds, of which 43 (37%) received a five-globe rating as a sign of their low levels of environmental, social and governance (ESG) risk. Morningstar also awarded 58 per cent of funds a four- and three-globe rating, identifying them as sustainable investments.