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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 due to capital appreciation, fund launches remain moribund, sustainable bond volume dips and ESG indices reflected mixed results. 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), 1,412 funds/share classes in total (1,175 mutual funds/share classes and 237 ETFs), based on Morningstar classifications, closed the month of September with $361.3 billion in net assets.  This represents a net gain in assets of $5.4 billion, or an increase of 1.5%.  The monthly net gain was the lowest in the third quarter, trailing the $6.5 billion uptick in August and $6.6 billion in July.  Still, net assets in September reached the highest month-end assets level achieved so far this year and above any month-end levels recorded in 2022. The net assets of both sustainable mutual funds as well as ETFs also reached new month-end high levels in September, attributable entirely to capital appreciation of about $5.4 billion.  Based on a simple calculation that reflects the average September total return gains recorded by long-term mutual funds at 1.8% and 3.05% by ETFs, it is estimated that sustainable funds experienced cash outflows during September in the amount of about $2.3 billion.  Mutual funds experienced cash outflows estimated at $1.7 billion while ETFs registered outflows estimated at around $600 million. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $29.6 billion in net assets, for an increase of almost 1%.  Mutual funds accounted for about 70% of the gain. New Sustainable Fund Launches The drought affecting new listings of focused sustainable funds, which started after May of last year, continued into September 2024.  There were no new mutual fund or ETF listings during the month, while during the third quarter, only one new ETF was launched versus five new funds during the same period last year and a total of only seven funds (adjusted), all ETFs, launched since the start of the year versus 64 during the same period last year. The only fund launched in the third quarter is the $300 million KraneShares Sustainable Ultra Short Duration Index ETF (KCSH) that, in addition to its fundamental investment strategy, invests in securities that are compatible with the principal objective of the Paris Climate Agreement, which seeks to limit temperature increases in this century to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius, above pre-industrial levels (i.e., carbon reduction target levels) while also employing exclusionary screens based on certain business practices. During the month, there were two fund liquidations (excluding fund share classes).  These included the $3.9 million Blue Horizon BNE ETF and the $16.3 million AMG GW&K Enhanced Core Bond ESG Fund with its three share classes. 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 while at the same time continuing to support sustainable investing practices.  Sustainability also remains important to corporate executives as well as asset owners.  According to a just released Voice of the Asset Owner Survey 2024 report by published by Morningstar based on survey findings, 67% of asset owners globally say that “ESG has become more material in the last five years.” Green, Social and Sustainability Bonds Issuance (to Q3 2024) In the just released third quarter data according to SIFMA, global green, social and sustainable bond issuance in the third quarter of 2024 reached $210.4 billion.  Based on slightly adjusted issuance numbers for the second quarter, this represents a quarter-over-quarter decline of $3.4 billion, or a 1.6% drop.  Green bonds accounted for 57.9% of global issuance while sustainability bonds and social bonds represented 25.4% and 16.7%, respectively, of total issuance.  Global issuance year-to-date reached $693.5 billion, running ahead of the comparable period last year when volume reached $617.4 billion or over the comparable period in 2023.  This represents a $76.1 billion pick up in sustainable bond issuance, or an increase of 12.3%. Against a backdrop of another strong quarter when fixed income issuance in the US reached $2.9 trillion, or a quarter over quarter increase of 16.1%, US sustainable bond issuance in the third quarter came in at $38.3 billion, recording a modest $0.7 billion increase, or 1.9%.  Year-to-date, US sustainable bond issuance reached $119.5 billion, for a year-over-year increase of $24.3 billion or 24.3%. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example.  More generally, sustainable bond data provided by different data sources can vary by significant margins.  Last year, for example, UNCAD reported that global green bond issuance reached $872.2 billion while Bloomberg reported an even higher $939 billion versus $746.8 million compiled by SIFMA. More recently, according to BBVA, green, social, sustainable and SLB bond issuance through September 20, 2024, reached $698.7 billion.  Of this sum, $431.0 million, or 62%, is sourced to green bonds, $108.7 billion was raised through social bonds, $133.4 billion is linked to sustainability bonds and $25.6 billion is attributable to sustainability-linked bonds. Short-Term Relative Performance:  Selected ESG Indices vs. Conventional Indices After a volatile start to September that saw the S&P 500 give up 4.2% during the first four trading days of the month, large cap stocks staged a recovery to close the month at a record level. For the month, the S&P 500 set five new closing highs and 43 closing highs year-to-date. Fueled by a sense of optimism that inflation was under control, the Federal Reserve’s 50 basis point (bps) interest rate cut will boost U.S. growth and avoid a recession, further powered at the end of the month by the announcement of a major injection of economic stimulus in China and positive expectations for corporate earnings in the third and fourth quarters, the S&P 500, which saw a broadening of stocks participating in the rally, closed the month and quarter with gains of 2.14% and 5.89%, respectively. Year-to-date, the benchmark is up by 22.08%. Other major indicators were up too. The Dow Jones Industrial Average gained 1.85%, adding 12.31% for the year and 26.3% across the trailing twelve months. At the same time, the Nasdaq 100, propelled by the performance of the Magnificent 7 that as a group, reversed the previous month’s decline, posted a gain of 2.6% in September, 20% year-to-date and a whopping 37.5% since October 1, 2023. China’s economic stimulus announcement drove Chinese stocks higher, delivering the best returns in September, up 23.9% according to the MSCI China Index and up 29.3% year-to-date. This development also impacted other world indices, elevating the MSCI ACWI, ex USA, up 2.7% and the MSCI Emerging Markets Index up 6.7%. MSCI EAFE was more subdued, generating a gain of 0.9%. Bonds, as measured by the Bloomberg US Aggregate Bond Index, registered their fifth consecutive gain in September, adding 1.3% and further lifting their 12-month and year-to-date gains to 11.6% and 4.5%, respectively and putting them on track to beat last year’s 5.5% gain. High yield bonds did even better, adding 1.6% for the month and almost twice as well with an increase of 8% year-to-date. While ten year and two-year Treasury yields dropped by 10 bps and 2 bps, respectively during the month, yields shifted higher by 5 bps and 11 bps during the 8 trading days following in the Feds larger than expected 50 bps US Fed rate cut which took the Fed funds rate to a 4.75-5% range. For the first time this year, the inverted yield curve turned positive in early September ahead of the Fed’s rate action. Against this backdrop, sustainable securities market benchmarks, measured by a selected number of five MSCI ESG Leaders indices covering equities and one Bloomberg MSCI US Aggregate ESG Focus Index, reflected mixed results in September and year-to-date. Three indices, the MSCI USA ESG Leaders Index, the MSCI ACWI ex USA ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index outperformed their conventional benchmarks by 21 bps, 38 bps and 159 bps, respectively, with the international indices benefiting from a greater China weighting which was most pronounced for the narrower emerging markets index. At the same time, lower energy prices in September were likely a contributing performance factor. Mixed results were also achieved on a year-to-date basis while over the trailing twelve months, relative results improved as four of the six ESG indices outperformed by a range as high as 3.6% recorded by the MSCI Emerging Markets ESG Leaders Index. While mixed relative returns also show up in the three-year results, improved long-term relative outcomes are evident over the trailing five- and ten-year intervals, in particular due to the outperformance of international ESG Leaders indices. Sources:  Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

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The Bottom Line:  Sustainable fund assets expanded with the benefit of capital appreciation, fund launches remained anemic while the relative performance of ESG indices rebounded. 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), 1,433 funds/share classes in total, based on Morningstar classifications, closed the month of August with $355.9 billion in net assets.  This represents a net increase in the amount of $6.5 billion, or a gain of 1.9%, versus a slightly higher $6.6 billion in the previous month.  This is now the highest month-end assets level achieved so far this year and above any month-end levels achieved in 2022.     The net assets of both sustainable mutual funds as well as ETFs also reached new month-end high levels in August, attributable largely to capital appreciation.  Based on a simple calculation that reflects the average August total return gains recorded by long-term mutual funds at 1.9% and 1.5% by ETFs, it is estimated that sustainable funds experienced cash outflows during August in the amount of about $0.2 billion to $0.3 billion, largely attributable to capital appreciation and modest inflows into ETFs that were offset by slight mutual fund outflows.  Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $24.2 billion in net assets, for an increase of 7.3%.  Mutual funds accounted for about 70% of the gain.           New Sustainable Fund LaunchesThere were no new mutual fund or ETF launches in August, reflecting a continuing drought in sustainable fund launches.  During the eight-month interval to the end of August, a total of six fund launches were recorded, all ETFs (this reflects an revised to reflect the launch of a new ETF in July).  This record stands in sharp contrast to the 63 funds that were launched during the comparable period in 2023.  Liquidations affected six mutual funds and two ETFs.  Four BlackRock managed mutual fund liquidations were reported, with assets totaling about $104 million, largely attributable to institutional investors, perhaps in the form of seed commitments.  At the same time, two ETFs were liquidated, including the $25.5 million BlackRock Future Climate and Sustainability Eco ETF and the $3.2 million Veridian Climate Action ETF. It seems that the fund “could not conduct its business and operations in an economically efficient manner over the long term due to the Fund’s inability to attract sufficient investment assets to maintain a competitive operating structure.”  That said, the Chief Investment Officer and portfolio manager of the fund’s sub-adviser’s resigned without further explanation.  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. While this may be the case, a just released Bain & Company research report entitled The Visionary CEO’s Guide to Sustainability 2024 indicates that sustainability remains important to corporate executives even as the importance of sustainability has declined.  At the same time, roughly 60% of 19,000 consumers surveyed say their concerns about climate change have increased in the past two years.Green, Social and Sustainability Bonds Issuance (to Q2 2024) The latest available data according to SIFMA show that global green, social and sustainable bond issuance in the second quarter of 2024 reached $207.1 billion.  This represents a quarter-over-quarter decline of $62.4 billion, or a decline of 23.2%.  Green bonds accounted for 68.3% of global issuance while sustainability bonds and social bonds represented 19.7% and 12.0% of total issuance.  Global issuance year-to-date reached $476.6 billion versus $468.9 billion over the comparable period in 2023.  This represents a slight $7.7 billion pick up in sustainable bond issuance, or an increase of 2%.  US sustainable bond issuance in the second quarter registered $37.0 billion, down $6.5 billion from $43.5 billion issued in the first quarter 2024, or a 2% decline. That said, June saw a slight pickup in issuance, increasing from $11.9 billion to $13.2 billion. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example.  More generally, sustainable bond data provided by different data sources can vary by significant margins.  Last year, for example, UNCAD reported that global green bond issuance reached $872.2 billion while Bloomberg reported an even higher $939 billion versus $746.8 million compiled by SIFMA.   Short-Term Relative Performance:  Selected ESG Indices vs. Conventional IndicesAfter a sharp stock sell-off at the beginning of August affecting the S&P 500 index as well as other major stock market indices, markets rebounded in response to positive economic data on inflation and retail sales that helped calm recession fears and a signal by the Federal Reserve that it was ready for interest rate cuts.  For the full month, the S&P 500 registered a total return gain of 2.4% and 27.1% over the trailing 12-months, the NASDAQ 100 gained 1.2% and expanded the twelve month gain to 27.3% while the small cap Russell 2000 index, whose momentum may have faltered, dropped 1.5% and recorded a trailing twelve month gain of 18.5%.  The best performing large cap sectors included Consumer Staples, Real Estate and Health Care, up 5.8%, 5.6% and 5.0%, respectively, while Real Estate and Health Care also ranked in the top three sectors of the mid-cap and small cap indices.  Against this backdrop, focused sustainable mutual funds and ETFs, a combined total of 1,446 funds and share classes with $360.6 billion in assets under management, registered an average increase of 1.8% in August and an average 15.4% over the trailing twelve months.  Sustainable international equity funds led with an average gain of 2.4% while US equity funds added an average of 1.9%.A selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, bounced back in August.  Of the five equity-oriented ESG Leaders indices, the three foreign indices led their conventional counterparts over the 1-month, 3-month, YTD and trailing 12-month intervals.  For the month of August, the MSCI Leaders ACWI ex USA ESG Index, EAFA ESG and Emerging Markets ESG led their conventional counterparts by levels ranging from a low as 43 bps to a high of 139 bps.  However, their US large-to-medium cap as well as small cap counterparts achieved the opposite results in that they lagged over the four time periods up to 12-months.  In August the MSCI USA ESG Leaders Index and USA Small Cap ESG Leaders Index fell behind their conventional counterparts by 4 bps and 35 bps, respectively.  At the same time, the Bloomberg MSCI USA Aggregate ESG Focus Index came in even relative to the underlying Bloomberg US Aggregate Bond Index.  Over the intermediate and long-term time frames, relative results through August have been faltering.  Evaluated over three time periods, from three years to ten years, the best interval, over the five-year period, produces a 50% level of outperformance relative to conventional benchmarks.  Over the three-year interval, only one benchmark, the MSCI USA ESG Leaders Index, managed to outperform its conventional counterpart.  It did so by an annualized average 74 bps.   Sources:  Morningstar Direct, MSCI, SIFMA/Dealogic, various fund prospectuses and Sustainable Research and Analysis LLC

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The Bottom Line:  Sustainable fund assets expanded modestly with outflows, sustainable bond issuance declined in Q2, selected ESG indices underperformed, and fund launches remained anemic.

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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.

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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.

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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