Assets in climate-focused funds soar to $408bn in 2021

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Assets in climate-focused funds soar to $408bn in 2021

The number of mutual funds and exchange-traded funds (ETFs) with a climate-focused mandate grew to 860 at the end of last year, according to a new report from Morningstar, and assets in the space doubled to $408bn. 

The report, which examined climate-focused investment funds revealed 2021 was a stand-out year for environmental finance, as COP26, a new US administration, and rapid growth in industry collaboration drove climate action and commitments across businesses and the asset management industry.

As product development in the space gathered pace, $408bn in assets flowed into climate-focused funds over the year, according to Morningstar, with Europe being the most diverse market, accounting for $325bn alone.

China outpaced the US for the first time, taking the spot as the second largest climate fund market, which doubled in size, reaching $47bn in assets.

US climate fund assets spiked to $31bn, up 45% on the previous year.

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"Fund investors globally have a growing number of choices to mitigate climate risk in their portfolios and invest in climate-related opportunities," said Hortense Bioy, global director of sustainability research at Morningstar.

"2021 saw major development in the climate funds universe globally, but especially in Europe. The introduction of the Sustainable Finance Disclosure Regulation in March ratcheted up the demand for innovative investment strategies incorporating climate considerations."

Climate funds today span a wide range of targeted strategies, from decarbonisation to climate-led solutions.

Notably, 151 new climate funds were made available to European investors last year.

Bioy added: "Recent improvements in climate-related data enable asset managers to better understand and interpret the climate profile of companies and countries, and as a result, design strategies that meet investors' needs and preferences."