## How Investment Funds Can Drive the Green Transition

_IMF Blog, October 4, 2021_

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**Canonical URL:** [How Investment Funds Can Drive the Green Transition](https://www.imf.org/en/blogs/articles/2021/10/04/gfsr-ch3-how-investment-funds-can-drive-the-green-transition)

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## Bibliographic details
- Authors: Fabio Natalucci, Felix Suntheim, Jrme Vandenbussche
- Published: October 4, 2021

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### Key findings
- The transition to net-zero greenhouse gas emissions requires additional investment of as much as $20 trillion over the next two decades.
- The world’s $50 trillion investment fund industry can play an important role financing the transition to a greener economy.
- Funds with a sustainability label totaled about $3.6 trillion at the end of 2020, representing only 7 percent of the overall investment fund sector.
- Funds with a specific climate focus accounted for $130 billion of that total.
- Net flows into sustainable funds increased notably in 2020; climate-themed funds grew especially fast, surging by 48 percent of assets under management.

### Role of funds in climate stewardship and firm financing
- Sustainable funds differ from conventional funds because they have a sustainability objective while also seeking financial returns; within this class, some funds are environment-focused and a subcategory is concerned with climate change mitigation specifically.
- Stewardship tools (direct engagement with firms and proxy voting) enable funds to influence corporate sustainability practices.
- Conventional investment funds voted in favor of almost 50 percent of climate-related shareholder resolutions in 2020, up from about 20 percent in 2015.
- Funds with a sustainability focus voted in favor of about 60 percent of such resolutions, and close to 70 percent in the case of environment-themed funds.
- Growing popularity of sustainable funds increases capital available to high-sustainability-rating firms, boosting firms’ bonds and shares issuance.

### Scale and recent trends
- Despite faster growth, sustainable investment funds remain a small fraction of the investment fund universe: $3.6 trillion or 7 percent at end-2020.
- Climate-themed funds composed $130 billion of sustainable fund assets at end-2020.
- Net flows into sustainable funds increased notably in 2020, with climate-themed funds surging by 48 percent of assets under management.

### Policy recommendations to boost sustainable and climate funds
- Strengthen the global climate information architecture (data, disclosures, and sustainable finance classifications) for firms and investment funds.
  - Better classification systems, where fund labels and taxonomies are uniformly used and understood, help summarize a fund’s investment strategy and its approach to engagement and stewardship.
  - Fund labels have become an increasingly important driver of fund flows, especially in the retail segment.
  - The IMF, together with the World Bank and the OECD, aims to develop principles for such classification systems to harmonize existing approaches and support sustainable finance market development.
- Implement proper regulatory oversight to prevent “greenwashing” and ensure that labels fairly represent funds’ investment objectives, thereby increasing market confidence and boosting flows into sustainable funds.
- Deploy tools to channel savings toward funds that enhance the transition once information and oversight are in place.
  - Example: enhanced eligibility of climate-themed funds for favorable tax treatment in savings products (such as retirement plans or life insurance products) could complement other climate-mitigation measures, such as carbon taxes.

*IMF Blog — How Investment Funds Can Drive the Green Transition, October 4, 2021.*

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## References

- [Global Financial Stability Report](https://www.imf.org/en/Publications/GFSR/Issues/2021/10/12/global-financial-stability-report-october-2021)
- [strengthen](https://www.imf.org/en/Publications/staff-climate-notes/Issues/2021/09/01/Strengthening-the-Climate-Information-Architecture-462887)

_Source: https://www.imf.org/en/blogs/articles/2021/10/04/gfsr-ch3-how-investment-funds-can-drive-the-green-transition_