ESG Grows During Recovery

Sustainable investments have seen a pick up in investor attention

Ruth Saldanha 28 July, 2020 | 1:13AM

ESG

The second quarter of 2020 saw a rapid recovery in global equity markets and continued depression in oil prices. It also saw rising interest in sustainable investments, with increased inflows and even a few new products for Canadian investors, a new Morningstar report finds.

The report analyses the performance of sustainable funds in Canada and also looks at the types of sustainable investment approaches available to Canadian fund investors. It is authored by Morningstar’s director of investment research Ian Tam and is titled Sustainable Investing Landscape for Canadian Fund Investors Q2 2020. You can find the report here.

All in all, the assets of these funds have grown this year. At the end of the second quarter, Morningstar estimates that assets invested in sustainable investments were $8.8 billion, a 13% increase compared with the end of 2019. For the second quarter, estimated net flows to sustainable funds were muted as compared to the last quarter, but still positive at $135 million.

The report also finds that in the second quarter of this year, four additional sustainable investments were launched, lower than the 11 new funds launched in the first quarter. This brings the year-to-date total of new launches to 15 new products. In total, Morningstar has identified 114 Canada-domiciled sustainable investments.

Exhibit 1

However, these new launches do not automatically indicate diversity in choice at least according to Morningstar’s framework in identifying sustainable funds. Though it may seem that Canadians have plenty of choices for funds that use environmental, social, and governance incorporation approaches, digging into the data, Tam finds that Canadian investors have few options when it comes to funds that are focused entirely on an environmental sector (like water or clean technology). Similarly, Canadians have the pick of the litter among funds that explicitly exclude exposure to controversial weapons and tobacco but have no options to invest in funds that explicitly exclude abortion/stem cell research, animal testing, fur/leather, or pesticides which may put a damper on fund investors who feel strongly against these areas.

Finally, in terms of performance, Tam finds that 58 of 99 sustainable investments placed in the top half of their respective Morningstar Category peer groups in the second quarter. Over the first half of 2020, 63 of 88 sustainable investments placed in the top half of peers. These results echo a similar pattern seen in U.S.-domiciled funds and indexes, and investors can assume that their returns will not be negatively impacted if they choose to invest sustainably.

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca

 

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