Canada's sustainable fund assets soar to $26 billion

Morningstar report finds assets rose 130% on an annual basis in Q2, with environmental impact funds seeing outsized growth

Canada's sustainable fund assets soar to $26 billion

Activity in Canada’s sustainable investment space might have moderated over the second quarter, but that hasn’t stopped it from hitting an impressive record.

According to a new report from Morningstar, Canadian sustainable assets (not including fund of funds) grew by 22% over Q2, ending the period at $26 billion. Year-on-year, sustainable fund assets – including both mutual funds and ETFs – soared by 130%.

Sustainable fund net flows clocked in at $2 billion over the quarter, much more muted than the flows observed in Q1. Equity ESG products led the charge, while asset-allocation funds saw moderate inflows and fixed-income funds exhibited moderate outflows.

Out of 150 sustainable investment products, a slight majority (81) continued to beat their respective category peers’ performance.

Given the combination of inflows and performance factors, sustainable equity funds ended the first half with 74% of all sustainable assets from Canada-domiciled manufacturers as the category grew by 22% compared to the first quarter. Allocation funds grew more rapidly (39% quarter-on-quarter), though it still just represents 9% of the market. Meanwhile, sustainable fixed-income funds grew by 10%.

“The space continued to be dominated by key players inclusive of NEI investments: RBC, BMO, Mackenzie, IA Clarington, and Desjardins,” Morningstar said. “Together, these five firms manage 81% of sustainable mutual fund and ETF assets.”

While ESG incorporation continued to dominate sustainable investment approaches, environmental impact funds have tripled year-on-year, suggesting that investors have grown more comfortable with that area. From $1.3 billion in Q2 2020, environmental impact funds shot up to $4.2 billion in Q2 2021. Low carbon/fossil-fuel-free mandates went from $2.8 billion to $6.9 billion over the same period,

Morningstar also noted that compared to their counterparts around the world, Canada-domiciled manufacturers tended to display lower degrees of ESG risk compared to their global peers.

“Of the funds that were rated (which require an ESG risk score for at least 67% of the portfolio), 81% receive Above Average (4 globe) or High (5 globe) ratings from Morningstar,” the report said.


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