Sustainable funds in Australia and New Zealand received record flows of $3.62 billion in the fourth quarter, according to a new report from Morningstar.
Total assets invested in sustainable funds reached $44.27 billion during the quarter, up 12 per cent compared to the previous quarter and 40 per cent higher than a year earlier.
Morningstar said that sustainable fund assets across Australasia had more than doubled over the past two years.
Investors have predominantly turned to active strategies for their sustainable investments, which accounted for 63 per cent of flows last year.
Morningstar found that 58 per cent of sustainable investments with a five-year track record had outperformed their peers within their respective categories.
The firm said this was encouraging news for investors that they would not need to sacrifice returns when building environmental, social and governance (ESG) portfolios.
Vanguard continues to dominate the local sustainable fund industry, accounting for 20.8 per cent of sustainable fund assets with flows of $761 million during the past quarter.
Australian Ethical accounted for 15.7 per cent of sustainable fund assets and received flows of $283 million, while Mercer ($467 million), BetaShares ($419 million) and Dimensional ($299 million) rounded out the top asset managers by flows in Q4.
“The Australian sustainable funds market remains concentrated, with the top 20 funds accounting for 88 per cent of total assets in the sustainable fund universe,” said Morningstar ESG analyst Erica Hall.
Three new funds were launched in Q4 and a total of nine throughout 2021, which was the slowest pace for fund launches since 2015.
Retail investors had access to 154 Australasia-domiciled sustainable funds as of the end of last year.
Morningstar also weighed in on the introduction of proxy advice reforms late last year which the firm said had been “rushed through” by the Australian government.
“Proxy advice is an important part of active ownership, allowing shareholders to raise important matters including a company’s approach to ESG issues,” said Ms Hall.
“The reforms were made in the name of improved transparency and accountability; however, they have placed undue pressure on a sector that has been effectively highlighting corporate issues on behalf of shareholders.”
