Patrick Pleul / image alliance through Getty Images
Investors paid record amounts of money last year into funds aimed at helping the environment and promoting the social good, more than doubling the previous year’s level.
Funds that use so-called ESG principles can, for example, invest in energy companies that do not rely on fossil fuels or in companies that promote racial and gender diversity.
They captured $ 51.1 billion in new net money from investors in 2020 – the fifth consecutive annual record, according to Morningstar. In 2019, investors incorporated approximately $ 21 billion into 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 US equity and bond funds last year, according to Morningstar.
This is a record and a big leap from the 1% share in 2014, according to Jon Hale, director of sustainable investment research at Morningstar.
Climate change, Black Lives Matter
The millennial generation is beginning to “keep up,” Hale said. Young investors have more assets to invest in and are moving into decision-making roles at investment institutions, such as endowments and pensions, he said.
“We see so much money flowing in [ESG funds] because we see enthusiastic investors about this concept, “Hale said.” They have these sustainability concerns and are beginning to realize that we can address them through our investments. “
More choices of ESG funds
Investors also have more options than ever before, Hale said.
The number of sustainable funds available to U.S. investors rose to nearly 400 last year – up 30 percent from 2019 and nearly fourfold over a decade, according to Morningstar.
Meanwhile, ESG funds could gain additional momentum if the Biden administration tries to make it easier for businesses to provide sustainable funding to 401 (k) employees and other workplace retirement plans, Hale said.
“That market has billions of dollars in it, which are not invested significantly in sustainable funds,” he said.