A record number of sustainable open-end funds and exchange-traded funds were launched in 2021 and attracted a record amount of net flows during the year, according to a new report from Morningstar.
According to the latest annual Sustainable Funds U.S. Landscape Report, 121 sustainable funds were launched during the year, far above the previous record of 71 funds launched in 2020. Also, 26 existing funds adopted sustainable metrics in 2021, boosting the percentage of all sustainable funds that were repurposed to 12%, according to the report.
Morningstar recorded a total of 534 sustainable funds available to investors in 2021, up from 392 funds available in 2020 and
Overall, sustainable funds brought in nearly $70 billion in net flows, the report said, although those flows peaked in the first quarter at $22 billion and gradually decreased to the fourth quarter's total of $14.2 billion in net flows. Net flows totaled just over $50 billion in 2020, the previous record.
The report also said that passive funds' share of the overall sustainable universe is gradually increasing, echoing the larger fund universe. While active funds continue to make up the majority of sustainable funds, that share declined to 60% by the end of 2021 from 81% three years ago, the report said.
Alyssa Stankiewicz, sustainability analyst at Morningstar and author of the report, said in a phone interview the market selloff at the beginning of 2020 after the COVID-19 pandemic began provided a kind of "proof of concept" for investors who previously might have been concerned that sustainable funds would underperform their non-sustainable counterparts.
"Sustainable funds handily beat their peers," Ms. Stankiewicz said, "so if you're looking in terms of total returns, 66% of (sustainable) large blend funds beat the category index in 2021 and that's compared with 54% of the category overall."
U.S. large blend funds comprise almost 17% of the overall sustainable funds universe, according to the report.
The report is available on Morningstar's website.
