Impact investments delivered strong returns in 2020 according to Morningstar UK investable universe in Europe. The most successful funds more than doubled in value due to surge in clean energy and new technologies.
The top performing fund, BNP Paribas Energy Transition Fund, which manages over €1.8bn of assets, returned 166% in 2020 with top investments along the sustainable value chain in solar energy (Sunnova Energy), fuel cells (Ballard Power), and power equipment and generators (Generac Power Systems).
The second best-performing fund is Blackrock Next-Generation Technology with 114% return. The fund invests in research and development of emerging technologies, such as electric mobility, cloud technologies, and financial technologies.
Best-Performing Impact Funds in 2020
iShares Global Clean Energy is the most successful exchange-traded fund (ETF) in our selection with 140% return. Its portfolio includes investments in fuel cell and hydrogen (Plug Power), solar power for homes (Enphase Energy), and renewable electricity providers.
Other outperforming funds invest in artificial intelligence, robotics, digital healthcare, social impact, and energy storage.
Strong performance of impact-oriented funds is backed by both economic fundamentals and increasing fund inflows into strategies with environmental, social, and governance standards. While large inflows may result in price inflation and short-term reversals, the underlying business models show increasingly robust fundamentals, business model resilience and growth potential, beyond demand-driven fund inflows. This macro-trend demonstrates that we at an early stage of a long-term secular growth.
Global fund flows in ESG assets increased more than 50% in 2020, reaching over $1.3tn (1). European sustainable fund market alone reached over €880 billion in 2020 of assets under management (2). However, this represents only 9% of total European assets while both institutional and retail investors continue to express demand for greater allocation towards ESG and sustainable assets (2).
A constraining factor is a relatively limited offering and accessibility of new impact-oriented investment products. In 2020, Morningstar identified 105 new ESG fund products launched, bringing the total number to 333. New ESG products represented 26% of all new ones introduced in 2020 (3). It is expected that greater breadth and depth will further continue to attract new flows with increasing diversity and sophistication for more efficient asset allocation.
(1) Institute of International Finance
(2) Morningstar, “ESG Funds Assets Hit £800 Billion”, November 9, 2020