ESG Investing Nears $2 Trillion As the Hottest Trend on Wall Street: Report

Sustainability is top of mind for investors as the ESG market sees record growth.

A new report from Morningstar released today points to the booming ESG investing trend. ESG stands for environmental, social, and governance. And it’s becoming big business: in the first quarter of 2021, ESG funds hit more than $185 billion.

“2021 began where 2020 left off with record demand for sustainable investment options across the globe,” Hortense Bioy, global director of sustainability research at Morningstar, said in a statement.

According to Morningstar, Q1 2021 was up 17 percent over Q4 2020. Interest is being driven by European markets, which accounts for more than 79 percent of funding flows. U.S. funds brought in more than $21 billion, setting a new record—it’s more than double from 2020’s $10.4 billion and nearly five times the size of ESG funding in Q1 of 2019.

The news comes on the heels of a report from Bloomberg, which found that the sector could double this year in the U.S. market.

It warned of volatility as a result of clean energy ETFs (exchange traded funds).

“Asset managers will have to compete harder in the expanding ESG ETF market. Funds that offer unique strategies at minimal cost are likely to draw the most interest while flows to complex themes tend to be cyclical,” BI ESG Analyst Shaheen Contractor, said in a statement.

Investors are more incentivized than ever to make green investments a priority. New Zealand is now poised to penalize financial institutions for failure to meet climate targets. And earlier this week, Hawaii became the first U.S. state to declare a climate emergency. Nearly 2,000 jurisdictions around the globe have made similar declarations that will help local governments prioritize sustainably-minded projects and partners.

Earlier this year JP Morgan Chase predicted more ESG investing. Bank of America upped its sustainability commitments to $1 trillion earlier this month.

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