Friday Funds: Assets in sustainable funds almost double in six months

The latest developments in ESG-related funds

Amundi and the International Finance Corporation have partnered to launch a $2bn emerging markets bond strategy to support a green recovery. The strategy will invest in labelled sustainability bonds issued by corporates and financials in developing countries, which the pair hope will help strengthen the asset class. The International Development Association’s Private Sector Window is considering a partial credit guarantee to extend the investment reach into low-income countries. 

Impact investor, ThomasLloyd, has announced the lPO of a sustainable energy infrastructure investment trust targeting emerging markets in Asia. An unnamed anchor investor has provided the fund, which is seeking to raise $340m, with $59m of seed assets and the UK has committed a seed investment of £25m as part of its MOBILIST programme, believed to be the first time the country has seeded an investment trust. It will target a dividend of 7% per annum from 2024, with a total target return of 10-12%. It is expected to qualify as an article 9 fund under the EU sustainable finance disclosure regulation. 

Lifesight, Willis Towers Watson’s DC master trust, has announced plans to invest £665m into Willis Tower Watson’s STOXX Climate Transition Index fund. Other unnamed WTW clients will invest around $75m by the end of 2021, with the fund expected to attract a total of $1bn. The fund tracks an index of the same name, which uses a ‘Climate Transition Value at Risk’ methodology to analyse the impact of a Paris-aligned transition on company cash flow. Stocks deemed to be beneficiaries or those expected to suffer are weighted accordingly.  

Assets in sustainable funds have almost doubled in the last six months, reaching $3.9tn at the end of September, according to Morningstar’s Global Sustainable Fund Flows report. In Europe, nearly half of overall fund flows in Q3 were into sustainable funds, with passive ESG funds seeing a 9% growth. While inflows to sustainable funds declined by 15% in Q3, they still outpaced normal funds, which saw a 20% drop in inflows. Meanwhile, data from the Investment Association shows that two thirds of inflows from UK retail investors in September were into responsible funds. 

ImpactShares has launched the MSCI Global Climate Select ETF. The ETF, based on the MSCI ACWI Climate Pathway Select Index, excludes fossil fuels, companies in breach of the UN Global Compact and companies involved in controversial activities including alcohol and palm oil. The parent index targets a 7% year-on-year decarbonisation. 

Only 7% of thematic funds have integrated ESG into their stock selection process or underlying index, according to new research from MSCI. More than half of technology themed funds hold an ESG rating of A, with political themed funds including those with “ideological mandates linked to weapons and fossil fuels”, performed poorest on average.  

CDC Group, Finnfund and Norfund have announced a partnership with sustainable landscape investment manager, NewForests, to develop investment strategies to help scale sustainable forestry in sub-Saharan Africa. The partnership aims to raise $500m over the next three to five years.  

Dai-ichi Life and real estate manager, Samurai Capital, have partnered to launch a ¥50bn (€378m) fund to invest in real estate assets with a social impact. The fund plans to acquire 30 assets including day-care centres and student housing and has already made five deals. 

The Church of England’s Social Impact Investment Programme has made its first commitment, a £1.6m investment in the Women in Safe Homes fund. The fund, run by Resonance and Patron Capital, aims to provide housing for 6000 vulnerable women and their children who are at risk of homelessness by letting them to women’s support organisations. 

The top selling ESG fund classifications have outperformed their conventional peers over three and five years, according to data from Refinitiv Lipper. Equity global, equity UK and GBP mixed asset funds all saw ESG versions beat out non-ESG over the two time periods, with ESG UK equity funds more than 15 percentage points ahead. 

AXA Investment Managers has rebranded its UK growth fund as a sustainable equity fund. The fund invests a minimum of 70% of its holdings to UK companies, with at least half invested in “ESG leaders” and the fund manager carrying out engagement with companies in transition on sustainability issues. 

KGAL has sold a 152.4MW renewables portfolio in France and Germany to Italian power producer ERG. KGAL did not disclose for how much it sold the portfolio, consisting of eight wind farms and seven solar parks, but said it had “achieved attractive returns”. 

BlackRock has raised $673m for the final fundraise of its Climate Finance Partnership, an investment vehicle for sustainable infrastructure in developing countries. A consortium of 22 public and private investors took part in the raise, exceeding the $500m target, including KfW, the Japan Bank for International Cooperation, AXA and AP2, which made an SEK500m (€50m) commitment. BlackRock itself committed $20m.