The fund research firm Morningstar said that climate fund asset growth in 2021 was “boosted by increased inflows and an accelerated pace of product development.”
The number of funds focused on the category more than doubled. Morningstar “identified 860 mutual funds and exchange-traded funds with a climate-related mandate at the end of last year,” including 563 in Europe. The firm’s 2020 report found “400 mutual funds and exchange-traded funds globally that had climate change as a key theme,” including 282 in Europe.
“Unsurprisingly given its greater commitment to a climate agenda, Europe remains the largest climate funds market, accounting for more than three-fourths of global assets,” Morningstar stated. China overtook the US as the second-largest climate funds market for the first time, with assets “more than doubling” to roughly $47bn. US climate fund assets were up by 45% to $31bn.
European climate fund assets rose sharply last year, from $166bn to $325bn, primarily due to “increased inflows of money poured into these funds, especially climate solutions and climate conscious funds,” Morningstar wrote.
Flows into European climate funds reached a record high of $108bn, a gain of 61% over 2020.
Morningstar identified 151 new European climate funds last year. Almost half (73) had a climate conscious strategy.
Several funds were “repurposed” to include “explicit climate-related characteristics in investment objectives,” due to “recent regulatory development and investor demand,” Morningstar noted. It recorded 52 repurposed European funds in 2021, with more than two-thirds switching to a climate conscious (26) or low carbon (11) strategy.
The vast majority of European climate funds are classified as article 9 funds under the EU’s Sustainable Finance Disclosure Regulation, with a small number listed as article 8. Article 9 funds have an impact objective, such as reducing carbon emissions. Article 8 funds have committed to integrating ESG criteria into their processes. Article 6 funds are considered non-sustainable.
Morningstar published the report, “” on 13 April. It used data that was current as of December 2021.