Climate-focused assets in open-end funds and ETFs jumped 30% in 18 months through June 30 to $534 billion, according to a Morningstar update published Sept. 26, but very few companies and countries are on track to achieve net-zero emissions by 2050.
The report, "Investing in Times of Climate Change," attributed the growth to both inflows and product development. Morningstar identified 1,400 funds with mandates related to climate as of June 30, up from just 200 in 2018.
The growth over the past five years comes from growing awareness of investment risks and opportunities related to climate change, Hortense Bioy, global director of sustainability research for Morningstar, said in a release on the report.
In Europe, with 84% of climate-related assets, it is also due to regulation, the report noted, while China and the U.S. have 8% and 6% market shares, respectively.
In the U.S., the much-anticipated growth expected from the Inflation Reduction Act so far has only reached 4% in the past 18 months, or $31.7 billion, "against the backdrop of high oil and gas prices, as well as falling valuations in renewable energy stocks," Morningstar said.
Despite the overall growth, there is "a gloomy reality" that there is no alignment with the goal of limiting global warming to 1.5 degrees Celsius, said Bioy, with the funds "investing in a tiny pool of companies and countries" on track to achieve net-zero emissions by 2050.
According to a Sept. 25 report from the International Energy Agency, record growth in clean energy makes that 1.5 degrees Celsius goal possible, but it will require a jump in clean energy investment from $1.8 trillion this year to $4.5 trillion annually in the next decade and for fossil fuel demand to fall significantly by 2030.