Through the first half of 2019, money market funds that incorporate environmental, social, and governance (ESG) metrics saw significant growth, with assets in the sector rising 15% to a $52 billion total valuation. This growth was buoyed by a spurt of activity from big asset managers, including State Street Global Advisors, BlackRock, and DWS. This pool of assets is relatively small, representing only a fraction of the $6 trillion of total assets in the money market sector. Still, the industry’s rapid expansion is striking, given its 1% total growth through 2018.

Alastair Sewell, senior director of funds and asset management at Fitch ratings, told the Financial Times that investor interest picked up late last year, after DWS, a key participant in the sector, converted an existing US money market fund into an ESG fund. Today, the majority of the ESG funds market is based in Europe, with Amundi leading the industry in total funds.

“In Europe, there are certain public sector bodies where they are strongly encouraged by regulators to choose an ESG variant where there is one available.” Mr. Sewell said.

Fitch expects ESG funds to make a significant jump into U.S. markets this year. BlackRock and SSGA, two of the nation’s largest investment management companies, launched U.S. ventures in January and July, respectively. The range of interested companies is rapidly expanding, with Starbucks indicating a strong interest in ESG financing just last month.

The growth of ESG money markets mirrors the increasing flow of ESG products, and sustainable funds are set to reach a fourth consecutive calendar-year record this August. Sustainable funds attracted an estimated $8.9 billion in net flows during the first six months of 2019, surpassing the $5.5 billion in total flows through all of 2018.

Read More via the Financial Times