Story at a glance

  • Sustainable investing is on the rise: In 2019 more cash flowed into mutual funds and exchange-traded funds with a sustainability focus than ever before.
  • These so-called environmental, social and governance funds (ESG funds) are mutual funds or exchange-traded funds that select companies for investment based on how those companies’ activities affect the environment, humanity or both.
  • The amount of new investment in ESG funds in 2019 nearly quadrupled the previous record, set in 2018.

Investors are putting their money in funds guided by ethical considerations in record numbers, according to a new report from Morningstar. 

In 2019, these funds took in $20.6 billion in new assets, CNBC reports. This figure is almost four times the 2018 total — $5.5 billion — which previously held the record.

“It really blew past that record,” Jon Hale, head of sustainability research at Morningstar, told CNBC. “This was quite a big surge.”

These so-called environmental, social and governance funds (ESG funds) are mutual funds or exchange-traded funds that select companies for investment based on how those companies’ activities affect the environment, humanity or both. For example, a fund focused on the environmental impacts of its holdings probably wouldn’t own shares of a strip mining company or an energy company focused on fossil fuels.

“I think there are big things happening in the world and economy today that align with this level of interest,” Hale told CNBC. “Climate change, for example, is a big issue that’s of increasing concern for more and more people.”

According to a recent survey, roughly 85 percent of investors are interested in sustainable investing, a 14 percent increase from 2015. Millennials are even more likely to invest sustainably, with 95 percent of young adults expressing interest in the same Morgan Stanley poll. 

There are now around 300 ESG funds, a plethora compared to the sustainable investment options of just three years ago, Hale told CNBC. 

But even with 2019’s record setting year influx of cash, ESG funds comprise less than one percent of the $20.7 trillion held in all U.S. mutual and exchange-traded funds.

Published on Jan 14, 2020