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Sustainable Funds Monitor
A timely monthly snapshot of trends and developments in the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets trends, new fund launches and fund closures, sustainable bond issuances and the performance results of selected sustainable indices versus conventional benchmarks. Published monthly, the Sustainable Funds Monitor is usually available within ten days following the month’s end.

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Sustainable Funds Monitor is premium content intended to inform sustainable investors, the investment decision makers of financial intermediaries, asset owners, such as endowments. foundations, and pension funds, distributors, wealth management platforms, robo-advisors, family offices as well as other investment stakeholders.

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The Bottom Line:  Sustainable fund assets expanded modestly, sustainable bond issuance remains strong, ESG relative performance results were positive, but fund launches were still anemic. Long-Term Net Assets:  Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,454 funds/share classes in total, based on Morningstar classifications, closed the month of June at $342.8 billion in net assets.  This represents a modest $3.7 billion net pick up in assets, or an increase of 1%, versus $339.1 billion the previous month and brings the combined total of focused sustainable mutual funds and ETFs to within a hair breadth away of the month-end high point for assets reached this year in March.  Since then, net assets have been flat. Based on a simple calculation that reflects the average June total return gains recorded by long-term mutual funds at 0.8% and -1.23% by ETFs, it is estimated that sustainable funds experienced narrow cash inflows in the amount of $3.1 billion. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $11.1 billion in assets, 88% of which is attributable to mutual funds. New Sustainable Fund Launches Even as one ETF was launched in June 2024, versus zero fund launches last month, it's fair to say that the drought in sustainable fund launches continued through the end of June. During the six-month interval, only five new funds were introduced, all ETFs.  This stands in sharp contrast to the 59 funds that were launched during the comparable period in 2023.  At the same time, one ETN, one ETF and two mutual funds were shuttered. The new ETF is the Invesco MSCI Global Climate 500 ETF, making its debut with $1.6 billion in assets. The fund intends to track the performance of approximately 500 stocks included in the MSCI ACWI ex 6 Countries Index that meet certain environmental and climate criteria relative to their peers, including their own reductions in carbon and greenhouse gas emissions. The scarcity in sustainable fund launches, starting after May of last year, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings.  At the same time, commitments to ESG integration do not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance While second quarter data is not yet available, green debt issuance globally is running at a fast pace and projections for green, social and sustainable bond (GSS) issuance indicate that global issuance could reach and perhaps exceed the USD 1 trillion-dollar mark. Moody’s, for example, projects that green, social and sustainable bond issuance could reach US$ 950 billion in 2024, slightly higher than 2023’s US$ 946 billion, while S&P’s forecasts indicate that issuance could rise to above the US$ 1 trillion mark and perhaps equal or exceed the record level registered in 2021. According to Morgan Stanley issuance will be fueled by the perception that climate is the biggest single existential threat of our time and issuers are focusing more narrowly on their climate and transition objectives, particularly as the year 2030 gets closer.  Another factor, according to Morgan Stanley, is the tremendous demand for power because of the AI boom.  This phenomenon is putting increased demand on the need for additional power sources, renewable or otherwise, including alternative power sources, that will require significant investments to meet the emerging demand. Other drivers include the increasing role of sovereign issuers, both in emerging and developed markets. As of April 2024, 53 sovereign issuers have issued GSS-labeled bonds totaling $540 billion.  Beyond the main players, countries such as Chile, Indonesia, Japan, Iceland and Australia have issued green bonds in 2024.  In addition, voluntary frameworks, such as the International Capital Market Association (ICMA) introduced new criteria and further guidelines to support the green, social, sustainability, and sustainability-linked bond principles as well as the implementation of regulations, such as the EU Bond Standard, that attempts to establish clarity and comparability for sustainable bonds across Europe that’s going into effect starting on December 21, 2024.  On the positive side, such standards should bring about a higher level of confidence in such instruments to investors. While other reports covering sustainable debt volumes in the first quarter 2024 quote even higher volumes, the latest available data according to SIFMA show that global green, social and sustainable bond issuance in the first quarter of 2024 rose to $256.5 billion, for a Q/Q $127.9 billion increase or nearly doubling the issuance level recorded during the previous quarter. January was the strongest month, during which $123.2 billion in green, social and sustainability bonds were issued—led by green bonds over the quarter (but not in the US where sustainability bonds dominated). Issuance volumes moderated in February and March.  U.S. issuance gained too, reaching $36.5 million for a Q/Q gain of 35% and exceeding the previous 2Q 2023 quarterly high mark since early 2022.  This came on the heels of strong Q1 aggregate issuance levels for bonds in the US that saw an increase of $2.5 trillion for a 26% gain. Short-Term Relative Performance:  Selected ESG Indices vs. Conventional Indices Fueled by enthusiasm for AI and expected interest-rate cuts before the end of the year in the light of softening economic data, the S&P 500 continued to register gains in June.  After recording a 5% total return in May, the index posted seven new closing highs in June and ended the month up 3.6%.  This was the benchmark’s fifth monthly gain this year, for a year-to-date increase of 15.9% and a trailing twelve-month return of 24.6%.  At the same time, the S&P 500 ESG index, designed to meet S&P’s sustainability criteria while maintaining similar overall industry group weights as the S&P 500, was up 3.4% in June.  While trailing in June, the ESG index is ahead of the S&P 500 with returns of 15.8% year-to-date and 25.1% over the trailing twelve-months.  The performance of the conventional large cap index and ESG version have been driven by a small number of growth-oriented technology companies that now dominate the index.  The same companies drove the performance of the S&P 500 Growth Index, up 6.98% in June, versus the S&P 500 Value Index that sustained a narrow -0.65% decline.  This dynamic also propelled large cap conventional and sustainable growth funds to achieve top results in June.  At the same time, small companies experienced another challenging month, with the Russell 2000 dropping 0.93%, after dropping around 1% in May and an even lower -1.69% posted by the Russell 2000 Value Index. On the bonds side, the Bloomberg Aggregate US Bond Index posted a slight 0.95% gain in June and a positive 2.6% increase over the trailing twelve months.  During the month, the FOMC met and as expected, kept interest rates unchanged. The 10-year U.S. Treasury Bond closed at a yield of 4.36%, down from the prior month’s 4.51% Overseas, strong performance in emerging markets pushed the MSCI Emerging Markets Index higher by 3.94% in June while the MSCI ACWI, ex USA Index and MSCI EAFE Index gave up 0.10% and -1.61%, respectively. Against this backdrop, based on a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, all constructed by MSCI around ESG screening and exclusionary criteria, four of the six ESG indices recorded positive relative performance results in June while only two beat their conventional counterparts over the trailing twelve months.  Total return margins of outperformance in June ranged from a low of 9 bps to a high of 1.02%. At the same time, the MSCI USA Small Cap ESG Leaders Index lagged in June while the Bloomberg MSCI US Aggregate ESG Focus Index came in even with its conventional counterpart. Over the intermediate and long-term time frames, based on three-, five- and ten-year time periods, the results remain mixed but improve over longer time periods.  Over the trailing three-year time horizon, only two of the six benchmarks, or 33%, outperform but this ratio improves to four out of five, or 80%, over the trailing ten-year time interval. Sources:  Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

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The Bottom Line:  Sustainable fund assets expanded due to market, social bond issuance was strong, ESG relative performance results were positive, but fund launches suffered. Long-Term Net Assets:  Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,475 funds/share classes in total, based on Morningstar classifications, closed the month of May at $339.1 billion in net assets. This represents an increase of $10.1 billion, or a net gain of 3%, which doesn’t completely offset April’s $13.9 billion decline but still closes the month with the second highest level of AUM so far this year.  Based on a simple calculation that reflects the average May total return gains recorded by long-term mutual funds at 3.5% and 4.9% by ETFs, it is estimated that sustainable funds experienced net cash outflows in the amount of $2.9 billion. Long-term mutual funds, which are ahead by $6.4 billion since December 31st, sustained an estimated $3.3 billion in outflows.  At the same time, the assets of the ETF segment registered a 2024 month end high level of $102.5 billion and recorded estimated inflows of $0.42 billion as of the month end. New Sustainable Fund Launches The drought in sustainable fund launches continued through the end of May.  During the latest month, there were no new listings of sustainable mutual funds or ETFs.  At the same time, there was one fund closure in May (not factoring in share class closures), the small cap JP Morgan Small Cap Sustainable Leaders Fund with its eight share classes and combined total of $25.2 million in assets. So far this year, there have been a total of only four new fund introductions.  These consisted entirely of ETFs.  By way of comparison, 54 new funds were launched during the same period in 2023, including a combined total of 29 funds listed in May alone.  In the following seven months, 14 funds were launched, and the number of monthly listings trended lower in succession. The scarcity in sustainable fund launches, starting after May of last year may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings.  At the same time, commitments to ESG integration do not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance While other reports covering sustainable debt volumes in the first quarter 2024 quote even higher volumes, the latest available data according to SIFMA show that global green, social and sustainable bond issuance in the first quarter of 2024 rose to $256.5 billion, for a Q/Q $127.9 billion increase or nearly doubling the issuance level recorded during the previous quarter. January was the strongest month, during which $123.2 billion in green, social and sustainability bonds were issued—led by green bonds over the quarter (but not in the US where sustainability bonds dominated). Issuance volumes moderated in February and March.  U.S. issuance gained too, reaching $36.5 million for a Q/Q gain of 35% and exceeding the previous 2Q 2023 quarterly high mark since early 2022.  This came on the heels of strong Q1 aggregate issuance levels for bonds in the US that saw an increase of $2.5 trillion for a 26% gain. One of the reasons for issuance level variations relative to SIFMA is attributable to the inclusion of sustainability-linked bonds, a segment of the sustainable debt instruments market that has been subject to regular criticism from analysts and asset managers who note that the bond targets are weak, are more likely to be missed and are hard to monitor. Results for April reported by Bloomberg, covering a broader universe of sustainable bonds, indicate that issuance of green, social, sustainable, sustainability-linked bonds as well as notes, reached $145.8 billion and $801.1 billion year-to-date.  Also, according to Bloomberg, bonds financing social initiatives reached an all-time monthly high in April at $14.3 billion while green bonds (green bonds and bonds issued pursuant to the Green Bond Principles) reached $90 billion. According to published reports, the Treasury Borrowing Advisory Committee, an industry group that works closely with the Treasury, proposed in early May the consideration of various new securities such as callable bonds, different maturities of floating-rate and inflation-linked bonds, and the green-branded securities.  The U.S. is the only major sovereign-debt issuer in developed markets that hasn’t been selling green bonds, which have swelled into a $2.6 trillion market. The U.S. Treasury advisory group estimated that 17% of green bonds were issued by sovereign governments.  In fact, the latest sovereign issuer, Qatar, raised $2.5 billion at the end of May through its first ever green bond. Short-Term Relative Performance:  Selected ESG Indices vs. Conventional Indices May was a strong month for stocks as well as bond market indices, reversing April’s declines.  All three major stock benchmarks, the S&P 500 Index, Dow Jones Industrial Average and the Nasdaq Composite, reached new all-time highs and recorded, by month-end, gains of 5.0%, 2.6% and 7.0%, respectively.  Ten of the eleven S&P 500 sectors ended the month on a positive note.  The Tech sector gained 10%, Utilities added 9% while the Energy sector, due to falling oil prices, declined 0.4%.  At the same time, all mid- and small-cap sectors recorded positive results.  While well short of its high as the index continues to lag, the small cap Russell 2000 index managed to post a gain slightly above 5.0% that edged out its large cap counterpart by six basis points. Against this backdrop, a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, constructed by MSCI around ESG screening and exclusionary criteria, recorded positive relative performance results in May as four of six ESG Leaders indices outperformed their conventional counterparts.  These include the three indices tracking international markets and one index seeking to replicate the performance of large and medium cap US stocks.  The three indices are the MSCI ACWI ex USA ESG Leaders Index, MSCI EAFE ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index, which pulled ahead of their conventional counterparts by 18 bps, 26 bps and 56 bps, respectively. Only the MSCI USA ESG Leaders Index that tracks large and mid-cap stocks missed the mark while the Bloomberg MSCI US Aggregate ESG Focus index was on par with its underlying benchmark.  That said, the reverse is true regarding 12-month results when four of five ESG indices lagged their conventional counterparts. Over the intermediate and long-term time frames, based on three-, five- and ten-year time periods, the results are mixed but improve over longer time periods.  Over three years, only one of six indices outperform, but this expands to three outperforming ESG indices over five years and four out of five outperforming ESG indices over the 10-year interval. Sources:  Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

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The Bottom Line: Sustainable funds gave up assets again in April while green bonds flourished. Relative performance results were mixed, and fund launches remained muted.

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Sources:  Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

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The Bottom Line:  Sustainable funds gave up assets in March while green bonds flourished. Relative performance results lagged, and fund launches continue to cool off.

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Sources:  Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

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The Bottom Line:  Sustainable funds added net assets in February while green bonds flourished. Relative performance results lagged, and fund launches were missing in action.

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Sources:  Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

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The Bottom Line:  Fund's net assets declined in January, also recording positive relative performance, while new fund launches lagged and sustainable bonds gain in 2023.

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The Bottom Line:  Long-term fund assets gained due to market appreciation, new fund formations decelerated, sustainable bonds and the performance of selected ESG indices lagged.

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Sources:  Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

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The Bottom Line:  Fund assets added $22 billion in November from market appreciation, relative ESG performance was mixed and fund launches continued to trend lower.

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Sources:  Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis.

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The Bottom Line:  Sustainable fund assets declined by $9.3 billion in October, relative ESG performance was positive, but fund launches and sustainable bond issuances lagged.  

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  Sources:  Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis.

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The Bottom Line:  Assets attributable to sustainable mutual funds and ETFs declined to $315.6 billion in September, during which time performance and fund launches lagged.

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Sources:  Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis

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The Bottom Line:  Sustainable funds’ net assets benefited from positive flows, new fund launches held up relative to 2022 while ESG fund indices lagged again.

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Sources:  Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis

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The Bottom Line:  New sustainable fund listings ticked up as well as green and social bonds and fund net assets while relative performance results lagged.  

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Sources:  Morningstar Direct, Bloomberg and Sustainable Research and Analysis

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The Bottom Line:  Relative performance results lagged again this month, as did fund formations and quarterly sustainable bond issuances, but sustainable mutual funds gained assets.

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  Sources:  Morningstar Direct, Bloomberg and Sustainable Research and Analysis

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The Bottom Line:  After twelve consecutive monthly increases in AUM, sustainable funds and ETFs took a breather to end Q3 with $2,814.5 billion in assets.

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The Bottom Line:  Sustainable mutual funds and ETFs ended August at $2,856.9 billion and are on a trajectory to exceed $3 trillion within several months.

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The Bottom Line:  Sustainable mutual funds and ETFs regained momentum in July, adding $153.2 billion and recording an 11th monthly consecutive high of $2,752.4 billion.

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The Bottom Line:  Sustainable mutual funds and ETFs took a breather in June, adding just $23.4 billion but reaching another new high of $2,599.2 billion.

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The Bottom Line: Sustainable mutual funds and ETFs continue their streak of nine consecutive monthly gains, reaching $2.6 trillion of assets under management in May.

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The Bottom Line:  Sustainable mutual funds and ETFs reach another all-time high at the end of April with almost $2.5 trillion in assets under management.

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The Bottom Line: During one of the most volatile months in stock market history, sustainable funds assets in March 2020 pierced the $2 trillion level.  

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The Bottom Line: Notwithstanding a severe market downturn at the end of February, sustainable MFs and ETFs added $4.8 billion to end at $1.871 trillion. The Sustainable Funds Monitor provides a timely monthly snapshot of trends and developments affecting the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets, fund flows, fund re-brandings, new fund firms, new fund launches and fund closures. FEBRUARY HIGHILIGHT: Notwithstanding a severe market downturn at the end of February that led to an S&P 500 decline of -8.23% and a Bloomberg Barclays US Aggregate Bond Index increase of 1.8% as investors shifted to bonds for safety, sustainable mutual funds and ETFs added $4.8 billion, the smallest 0.3% increase since the start of 2019, to close the month at yet another new high of $1.871 trillion.

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The Sustainable Funds Monitor provides a timely monthly snapshot of trends and developments affecting the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets, fund flows, fund re-brandings, new fund firms, new fund launches and fund closures. JANUARY HIGHLIGHT: Assets reach new all-time high of $1.87 trillion due to re-brandings that offset fund outflows (-$59.2 billion) and negative market movement ($-5.01 billion).  

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The Sustainable Funds Monitor provides a timely monthly snapshot of trends and developments affecting the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets, fund flows, fund re-brandings, new fund firms, new fund launches and Fund closures. DECEMBER HIGHLIGHT: Assets reach new all-time high of $1.6 trillion.

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Research

Research and analysis to keep sustainable investors up to-date on a broad range of topics that include trends and developments in sustainable investing and sustainable finance, regulatory updates, performance results and considerations, investing through index funds and actively managed portfolios, asset allocation updates, expenses, ESG ratings and data, company and product news, green, social and sustainable bonds, green bond funds as well as reporting and disclosure practices, to name just a few.

A continuously updated Funds Directory is also available to investors.  This is intended to become a comprehensive listing of sustainable mutual funds, ETFs and other investment products along with a description of their sustainable investing approaches as set out in fund prospectuses and related regulatory filings.

Getting started

Many questions have surfaced in recent years regarding sustainable and ESG investing.  Here, investors and financial intermediaries will find materials that describe the various approaches to sustainable investing and their implementation.  While sustainable investing approaches vary and they have thus far defied universally accepted definitions, many practitioners agree that they fall into the following broad categories:  Values-based investing, investing via exclusions, impact investing, thematic investments and ESG integration.  In conjunction with each of these approaches, investors may also adopt various issuer engagement procedures and proxy voting practices.  That said, sustainable investing approaches will continue to evolve.

In addition to periodic updates regarding sustainable investing and how this form of investing is evolving, investors and financial intermediaries interested in implementing a sustainable investing approach will also find source materials that cover basic investing themes as well as asset allocation tactics.

Inesting ideas

Thoughts and ideas targeting sustainable investing strategies executed through various registered and non-registered sustainable investment funds and products such as mutual funds, Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), closed-end funds, Real Estate Investment Trusts (REITs) and Unit Investment Trusts (UITs). Coverage extends to investment management firms as well as fund groups. 

Independent source for sustainable investment management company research, analysis, opinions and sustainable fund disclosure assessments