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