£9 in every £10 invested in July went to ESG funds

New research shows investors are increasingly opting for regional or sector-focused ESG funds.

For every £10 invested in equity investment funds in July, £9 went into an environmental or ethical fund, according to data released by Calastone, the global funds network.

The figures show that environmental social and governance (ESG) equity funds accounted for 90% of July’s equity fund inflows. ESG equity funds saw net inflows of £995 million over the course of July. This represented the second-best month on record for ESG funds.

More broadly, inflows into equity funds were lower compared to previous months. In July, net inflows into equity funds fell, standing at £1.12 billion. This was slightly below June’s £1.2 billion. July’s figure represented around half the average monthly inflow over the previous six months (£2.05 billion).

• The ETFs Show: environmental, China edtech, and cannabis fund
• The one fund Baillie Gifford is monitoring after value assessment
• Top 10 most-popular investment funds: July 2021

July also saw a large decline in passive fund inflows, with actively managed funds taking the lion’s share of investor money. Active equity funds saw net inflows of just over £1 billion, while passive strategies saw inflows of just over £40 million.

This represented a steep decline from previous months. In both May and June, passive funds took in more than £500 million. Index fund inflows were at their second-worst month in over five and a half years. Compared to their long-run monthly average, index fund inflows were down by 90% in July.   

In contrast, inflows into active equity funds held up relatively well. July’s inflows totalled £1.08billion. According to Calastone, this was partly thanks to strong demand for ESG strategies.

ESG goes sectoral  

The data also showed investors buying ESG funds in a wider range of regions than in the past. The vast majority of cash put into ESG funds has for some time been going into ESG global equity funds. For example, in 2020, 81% of ESG equity fund inflows were to this category.

However, this share is falling. Year-to-date, ESG global equity funds have accounted for two-thirds (66%) of ESG inflows. In July, this figure dropped to 52%, the lowest level on record. Increasingly, investors are opting for regional or sector-focused ESG funds.

• The reasons why ESG ETF demand is soaring
• Want to invest ethically? ii’s ACE 40 list of ethical investments can help
• Liontrust ESG trust cancelled due to lack of demand

Year-to-date, sector-based funds investing in areas such as sustainable energy, water, general environmental, and infrastructure have garnered £764 million in inflows. These represent two-thirds of all their cumulative inflows since 2015, demonstrating the growing popularity of such funds. In July, £1 in every £4 invested in ESG equity funds was sector-based.

Calastone analyses more than a million buy and sell orders each month, tracking flows in and out of investment funds from financial advisers, platforms and institutions. Calastone says that more than two-thirds of UK fund flows by value pass across its network every month.