Key Impact Points
- Sustainable funds grow by 10.9%: Global large-cap sustainable funds have risen 10.9% year-to-date, trailing major benchmarks but still showing strong performance.
- Top performers driven by tech holdings: Funds with heavy investments in companies like Nvidia and Constellation Energy posted the highest returns.
- Mainstream adoption of ESG investing: With growing focus on sustainability, sustainable funds are now integral to global investment strategies.
Insights brought to you by Quinn Rennell, Morningstar
Sustainable Fund Performance in 2023
Sustainable investing continues to gain momentum in 2023, with global large-cap sustainable funds up 10.9% year-to-date. While this performance lags behind the MSCI ACWI Large Cap Net Return Index (14.8%) and the Morningstar Global Markets Index (12.8%), it still represents significant growth. This average return was calculated from a screen of 1,402 funds listed as sustainable investments within the global large-cap Morningstar category. Excluding U.S.-domiciled funds, the average return rises slightly to 11.1% across 1,317 funds.
What Is Sustainable Investing?
Sustainable funds use environmental, social, and governance (ESG) criteria to evaluate investments, focusing on societal impact as well as financial returns. This approach integrates ESG factors into traditional financial analysis, aiming to uncover risks or opportunities that may not be visible otherwise. According to Morningstar, a strategy qualifies as sustainable if it explicitly focuses on sustainability, impact, or ESG factors in regulatory filings or fund prospectuses.
Largest Sustainable Funds
Some of the largest global large-cap sustainable funds have posted robust performance in 2023. Here’s a look at the five largest funds, excluding U.S.-domiciled funds:
- Nordea 2—Global Responsible Enhanced Equity Fund: Up 14.39% year-to-date, this fund focuses on stocks that demonstrate strong ESG profiles and low carbon footprints. The fund holds large positions in Nvidia, Apple, and Microsoft, with total assets of $17.46 billion.
- Northern Trust World Custom ESG Equity Index Fund: This passive fund, with $15.2 billion in assets, tracks the MSCI World Custom ESG Index and has returned 14.91% year-to-date.
- Handelsbanken Global Index Criteria: With $12 billion in assets, this fund tracks the Solactive ISS ESG Screened Global Markets Index and is up 19.80% year-to-date.
- BlackRock ACS World ESG Equity Tracker Fund: Up 12.8%, this fund has $11.79 billion in assets and focuses on minimizing carbon exposure while maximizing ESG factors.
- BlackRock ACS World ESG Insights Equity Fund: Holding $11.47 billion in assets, this actively managed fund is up 12.49% year-to-date, targeting companies with strong ESG scores.
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Related Article: Euronext’s Expanded Commitment to Sustainable Finance Accelerates Progress Toward SDGs by Mobilizing Capital for Green Initiatives
Best-Performing Sustainable Funds
The top-performing sustainable funds in 2023 show even more impressive returns, particularly those with holdings in tech giants like Nvidia and Constellation Energy:
- Munro Climate Change Leaders Fund: Up 37.86% year-to-date and 45.6% over the past year, this actively managed fund focuses on growth-oriented, climate-focused equities. Nvidia makes up 9.03% of its assets.
- CI Global Climate Leaders Fund: Posting 37.49% returns so far this year, this fund invests in decarbonization and climate change companies, with Constellation Energy and Nvidia among its top holdings.
- iShares MSCI World Momentum Factor ESG UCITS ETF: Up 23.06% year-to-date, this passively managed fund tracks the MSCI World Momentum ESG Reduced Carbon Target Select Index.
- BNP Paribas Easy—Low Carbon 300 World PAB: This fund, up 22.55%, tracks the Euronext Low Carbon 300 World PAB Index and has Nvidia as its largest holding at 11.92%.
- RHB i-Global Sustainable Disruptors Fund: With returns of 21.84% so far this year, this Shariah-compliant fund invests in global equities screened for ESG scores, with Microsoft and Nvidia leading its holdings.
The Rise of Sustainable Investing
Sustainable investing has shifted from niche to mainstream, with many investors integrating ESG factors into their portfolio strategies. As evidenced by the strong performance of funds like the Munro Climate Change Leaders Fund and CI Global Climate Leaders Fund, ESG-focused investments are increasingly driving returns. Large-cap sustainable funds, although trailing major benchmarks, demonstrate that sustainability and profitability can go hand in hand.
