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Last year, investors invested record amounts of money in funds intended to help the environment and promote the social good, rather than double the previous year’s takeover.
Funds that use so-called ESG principles can, for example, invest in energy companies that do not depend on fossil fuels or in companies that promote racial and gender diversity.
They captured $ 51.1 billion in new net investor money in 2020, the fifth consecutive annual record, according to Morningstar. In 2019, investors allocated approximately $ 21 billion to funds that apply environmental, social, and governance principles.
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At the same time, ESG funds (also known as sustainable funds) accounted for about a quarter of the money that flowed into all U.S. equity and bond investment funds last year, according to Morningstar.
This is a record and a big leap from the 1% share of 2014, according to Jon Hale, director of research for sustainable investments at Morningstar.
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The millennial generation is starting to “take a good step,” Hale said. Young investors have more assets to invest in and are advancing in decision-making functions in institutions that make investments, such as endowments and pensions, he said.
“We are seeing how so much money is flowing [ESG funds] because we see investors being enthusiastic about the concept, “Hale said.” They have these sustainability concerns and they are beginning to realize that we can address them through our investments. ”
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Investors also have more options than ever before, Hale said.
The number of sustainable funds available to U.S. investors grew to nearly 400 last year, 30 percent more than in 2019 and an increase nearly fourfold in a decade, according to Morningstar.
Meanwhile, ESG funds could gain new momentum if the Biden administration wants to make it easier for companies to offer sustainable funds to 401 (k) employees and other workplace retirement plans, Hale said.
“This market has billions of dollars that are not invested significantly in sustainable funds,” he said.