Last year was the biggest ever for ESG fund flows, performances and alpha generation, according to new data from Bank of America (BoA).
The US giant’s report, ESG Matters – Quant Edge, published this week, showed that flows into sustainable investment strategies reached $255 billion in 2020 – a new record.
Within equities, 1,867 ESG funds saw inflows of $194 billion, in contrast to $186 billion in outflows from other global equity funds.
A record 141 new ESG funds were launched in 2020, with seven out of 10 of these funds domiciled in Europe.
This year has started with even stronger inflow momentum for sustainable products, BoA reported. Global ESG funds have experienced $24 billion in inflows so far, running at 1.5 times the pace of flows in 2020.
There has been a surge of interest in the past year in ESG, driven by investors looking for more resilience during the Covid-19 pandemic.
Investor interest has also been boosted by governments around the world looking to transition to a low-carbon economy and encourage climate-friendly investments. Asset managers have also been touting the performance of ESG as a shield against volatility.
ESG-themed bond issuance in 2020 exceeded $500 billion for the first time ever, BoA’s data showed, with green, social and sustainability bonds all logging big increases.
Social bonds recorded the highest percentage increase in volume of issuance, up 722% from 2019 to $148 billion. Green bond issuance rose 12% to $303 billion while sustainable bond issuance jumped 82% to $69 billion.
With the election of President Joe Biden on a ticket pledging to tackle climate change, analysts expect flows to continue to accelerate in 2021.
“With regulatory changes coming to the EU and a new presidential administration in the US, 2021 will see even greater focus on environmental and social issues,” BoA stated in its report. “We expect this to mean more labelled bond issuance.”
BoA’s analysis revealed that 65% of ESG indices outperformed equivalent traditional benchmarks in 2020. However, only 30% of ESG funds were benchmarked against sustainability themed indices.