As more investors consider strategies that track environmental, social, and governance, or ESG, principles, funds that track debt designed to help society enjoyed greater growth in the first half of the year compared to those that buy sustainable equities.
After the coronavirus pandemic hit, Hortense Bioy, director of sustainability research for Europe, the Middle East, Africa, and Asia Pacific at Morningstar, pointed out that there has been increased investment demand for global funds that invest in any sort of asset that makes the world a better place, Bloomberg reports.
Specifically, Bioy said many investors have gravitated toward fixed-income funds because bonds and loans can be clearly tied to projects with environmental, social or governance aims, while equity can be harder to track.
Over the first six months of 2020, funds that provide exposure to debt funding environmental, social, and governance matters expanded 12% in assets from the end of 2019 globally, touch a record $209.5 billion in total assets, according to Morningstar data. In comparison, ESG-related equity funds saw a 10% growth in assets, which reached $660.7 billion over the same period.
Looking Around The World
Global sustainable fixed-income assets is projected to hit $260 billion to $280 billion globally by the end of the year, while sustainable equity fund assets could also expand to $730 billion to $750 billion globally, according to Bioy.
Europe in particular has stronger regulations for sustainable investing and accounted for most of the recent inflows to ESG-related debt and equity funds.
“Assets in ESG fixed-income funds have been growing in the past few years and we expect an upward growth trend in the medium to long term,” Bioy told Bloomberg. “The momentum is there and there’s a demand for ESG bonds across the board.”
Looking ahead, many argue that concise and reliable ESG data reporting will be a key factor in the growth of related fund strategies. For example, the Global Investors for Sustainable Development Alliance, which makes up 30 chief executive officers from prominent corporations around the globe, have backed sustainability reporting on relevant ESG topics mandatory for financial and non-financial institutions.
“The noise around the data doesn’t give what investors need most, which is consistent, comparable disclosure data,” Jay Collins, vice chairman of banking, capital markets and advisory at Citigroup Inc., told Bloomberg.
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