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Strong flows point to rising popularity of ESG funds, Morningstar reports

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      By Anthony EamesDirector of Responsible Investment Strategy, Calvert Research and Management

      Washington - If fund flows are any indication, the popularity of sustainable funds, which typically consider environmental, social and governance (ESG) factors, is clearly on the rise. Thus far in 2019, asset flows into sustainable funds are on track to triple 2018's record of $5.5 billion, according to Morningstar.1

      In each of the first three quarters of 2019, sustainable funds attracted more than $4 billion in new assets. Prior to this year, flows had never topped $2 billion in any single quarter. Through September, estimated flows into the 288 U.S. open-end and exchange-traded ESG funds available to investors reached $13.5 billion, according to Morningstar.2

      Set to triple 2018's record: Quarterly estimated ESG flows.

      12219Morningstarchart1

      These estimated flows are based on a universe of sustainable funds consisting of those Morningstar categorizes as ESG Focus, Impact/Thematic and Sustainable Sector.

      At the firm level, five asset managers have attracted more than $1 billion in flows so far this year, including Calvert, at $2.3 billion.

      Asset managers with largest estimated net flows into sustainable funds (YTD through Sep. 2019).

      12219Morningstarchart2

      Notably, there has been a pickup in flows into sustainable fixed-income funds, as well as more product offerings. Of the 288 sustainable funds in the Morningstar universe, just 53 are bond funds and 24 of those have been launched within the past three years. A leader in sustainable fixed-income investing, Calvert offers an array of strategies, from ultra-short duration and green bond to high-yield and municipal.

      ESG a material performance factor

      In recent years, the dynamic growth of ESG funds has been spurred by both individual investor concerns and institutional mandates, which increasingly recognize the material sustainability challenges companies and society face today. When it comes to what motivates ESG investors, environmental issues like climate change, plastics and emissions generally top most lists. In some surveys, investors cite the current administration's environmental policies as a reason for their increased interest in ESG.3

      As year-over-year trends indicate, momentum for ESG investing appears here to stay. We believe this signals a growing recognition that ESG strategies can deliver competitive performance as well as provide insight into areas of material investment risk and opportunity.

      Bottom line: Over the past two years, ESG funds have seen a record influx of assets and products. These trends further signal to investment professionals that ESG is an area of potential growth and opportunity, not to be overlooked.